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Economy will not return to pre-Covid levels until 2022

Business leaders have warned the UK economy will not return to pre-pandemic levels for another two years.

According to the CBI’s latest forecast, it will be the end of 2022 before the economy returns to pre-Covid levels.

It adds the huge fall in GDP triggered by Covid-19 restrictions in March and April – and a smaller dip over the winter following November’s second lockdown – means that an economic recovery still has some way to go.

The CBI is now forecasting 6% growth in GDP over 2021, and 5.2% in 2022.

The forecast notes that consumer spending has been at the epicentre of the crisis, and is set to drop by 14.7% in 2020, with leisure activity strongly curtailed and many workers reining in spending due to uncertain employment prospects and hits to incomes.

But it says the Job Retention Scheme has insulated the labour market against bigger job losses, but unemployment will peak at 7.3% in Q2 2021.

By the end of 2022, it will have receded to 4.9% – still short of the pre-pandemic level of 4%.

And with health outcomes improving from mid-2021, and real incomes recovering, household spending will pick up, rising by 3.3% in 2021 and 8% in 2022.

It comes as a report by the Centre of Economics and Business Research (CEBR) warns businesses in London have been most impacted by the pandemic.

‘Covid-19 has left deep scars on the economy, but this forecast does offer grounds for optimism. The road to recovery will be long, but the trajectory is positive, and we must do all we can to hasten the journey,’ said CBI director-general, Tony Danker.

‘We simply must find new ways to get businesses investing at the start of 2021 if we are to fast-forward the recovery,’ he added.

‘We’ve had great news on vaccines this week, but if we are to be masters of our own destiny then we must act decisively to rebuild a better economy.

‘British business is like a coiled spring ready to release ambition and investment. They just need a chance.’

Photo Credit – Geralt (Pixabay)

Jamie Hailstone
Senior reporter - NewStart

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