A respected think tank has claimed that Britain’s economic recovery could take 18 months longer than expected.
The EY Item Club report says the hoped for V-shaped recovery is now unlikely to happen and it could be 2024 before Britain’s economy is back to its 2019 level
The think tank said the UK’s economy has shrunk by a record 20% between April and June, but it expected to return to growth in the third quarter of the year.
While lockdown restrictions have started to lift, the country’s financial sector has been particularly damaged by the pandemic.
EY chief economic advisor Howard Armstrong said: “Even though lockdown restrictions are easing, consumer caution has been much more pronounced than expected.
We believe that consumer confidence is one of three key factors likely to weigh on the UK economy over the rest of the year, alongside the impact of rising unemployment and low levels of business investment.
“The UK economy may be past its low point but it is looking increasingly likely that the climb back is going to be a lot longer than expected.
May’s growth undershot even the lowest forecasts. By the middle of this year, the economy was a fifth smaller than it was at the start.
Such a fall creates more room for rapid growth later, but it will be from a much lower base.”
The report claims unemployment could double to 9% by the end of they year.
The rise is likely to contribute to weak levels of consumer spending which is expected to fall by 11.6% by the end of the year before rising again in 2021 as the jobs market starts to recover.
Howard Archer commented: “The labour market’s performance is key to the economy’s prospects over both the short term and further out.
Job losses and poor real wage growth are expected to hold back consumer spending, but it is possible that the chancellor will look to provide further help for the labour market in this autumn’s budget.”
The think tank believes the government may pump a further £100 billion into the economy in the autumn, taking the overall total to £845 billion.
Economist Mark Gregory said: “Government measures have provided significant short-term support, but many businesses are waiting for more certainty over the economic outlook before making longer term investment decisions.
“Policies such as VAT cuts are welcome, but they aren’t a complete solution, as they don’t resolve the concerns consumers may have about going to restaurants and bars in the first place.”