Bank of England Predicts Rapid Economic Recovery as Consumer Habits Surge
Governor Andrew Bailey, of the Bank of England, forecasts a rapid economic recovery on the horizon as the success of the vaccine programme continues to exceed expectations. Immunising hundreds of thousands of the UK’s most vulnerable citizens each day, it seems that the predicted timeline for the easing of restrictions becomes more achievable with each dose received.
Although the current lockdown has slightly reduced the expected economic growth for the current quarter of 2021, to 5% from 7.5 %, a far more optimistic outlook has been projected for the rest of the year.
It is expected that the success of the NHS vaccination programme will start to make society safe again and as restrictions lessen this will lead to a sudden increase in consumer spending, particularly for the hospitality industry, as many express their longing for the safe return of social gatherings. A significant proportion of the population is expected to be immunised by summer of this year. Once this is achieved and health concerns start to fade into the background, economic activity will increase exponentially. For 2022, the Bank predicts growth of 7.25%, an improvement from the previously forecast 6.25%, and suggests that it could exceed this depending on the uptake in consumer spending. For many who have participated in the job retention furlough scheme, or worked throughout the pandemic, they are likely to have built-up a savings cushion and could ‘splash-out’ more than has been accounted for in these projections.
Further to this, indicative data estimates that from March to November in the previous year, households collectively were able to conserve £125 billion more than usual and this is likely to have accumulated to amount to an even larger sum in the past few months. Officials are inclined to believe that the economic decline has contracted by less than was initially estimated. The occurrences due to this unprecedented environment are so far removed from anything in modern history, and thus there is a crucial difference between previous periods of economic slump and the current climate. The contributing factors have been in the form of restrictions as a result of health concerns, this has created a gradual increase in pent-up demand for services and this has led to projections of an imminent surge in consumer spending. This report from the Bank of England was published after the decision was taken to hold interest rates at a record low of 0.1% and to continue its £895 billion programme of quantitative easing.
The report also suggests that GDP experienced a small increase in the final quarter of last year, dismissing fears that the third national lockdown in November would worsen the economic situation.