Wednesday 12th August 2020
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Growth forecasts cut but prospects for 2021 brighten

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A major forecasting group has downgraded its short term economic outlook and warned of a fall in long-term investment although it believes prospects for 2021 are looking slightly brighter. The EY ITEM Club summer forecast is now assuming UK gdp will shrink by 11.5 per cent this year, which compares with an 8 per cent contraction it was expecting only a month ago. With hopes of a V-shaped recovery fading, it now believes the economy shrank by a fifth in the second quarter, partly driven by weakness in May as Covid-19 took its toll on the services sector. Unemployment is set to more than double to 9 per cent by late 2020 and business investment is set to fall by more than a fifth. However, the group’s growth forecast for 2021 has been raised to 6.5 per cent up from 5.6 per cent previously. Howard Archer, chief economic advisor to the EY ITEM Club, said : “Even though lockdown restrictions are easing, consumer caution has been much more pronounced than expected. 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.”

Stuart Wilkinson, office managing partner at EY in the East of England, said: “With lower demand and margins under pressure because of the need to spend on modifying workplaces, products and consumer experiences so that they’re Covid-safe, there’s a risk that the current uncertainty could lead to a fall in long-term investment. While short-term support measures announced so far have been unprecedented, more direct support is likely to be needed in the future. 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.”