UK recovery 'to be even stronger than expected'

The Organisation for Economic Co-operation and Development (OECD) has substantially increased its forecast for economic growth in the UK this year and next.

Illustration of economic growth
In its latest, six-monthly 'Economic Outlook', the organisation upgraded it forecast from 5.1% GDP growth to 7.2% this year. For 2022, growth is estimated at 5.5%, up from 4.7%.Publication of the OECD forecast coincided with a Confederation of British Industry (CBI) report showing that, in the three months to May, private sector activity across the UK economy grew at its fastest pace since August 2015.However, the OECD report warned that the UK's post-pandemic recovery would be lower than many other major economies because of the continuing effects of Brexit."The United Kingdom could suffer the biggest reduction amongst G7 countries (a decline of 0.5 percentage point per annum), in part reflecting the additional adverse supply-side effects from 2021 following Brexit," said the forecast.

Sustainable policy frameworks and international cooperation necessary

Laurence Boone, chief economist at the Paris-based organisation, also pointed out that there would be a large gap in the post-pandemic recovery between the world's rich and poor nations."The world economy is currently navigating towards the recovery, with lots of frictions," she said."The risk that sufficient post-pandemic growth is not achieved or widely shared is elevated. This will very much depend on the adoption of flexible and sustainable policy frameworks, and on the quality of international cooperation."

Fastest rate of economic growth on record

Meanwhile, the CBI’s latest 'Growth Indicator' showed that activity over the quarter among the UK's business and professional services activity grew at the fastest pace since the survey began, while distribution sales and manufacturing output increased at their fastest rates since 2018.Expectations are that private sector growth will accelerate even further in the coming three months, said the CBI, adding that if these expectations were met, it would represent the fastest rate of economic growth on record since the organisation introduced it Growth Indicator in 2003.Alpesh Paleja, CBI lead economist, said, “As the country slowly but surely reopens, the economy has really taken off. Most sectors have seen a real uplift in activity in recent months and believe that the outlook for the summer is strong.

Situation still fragile for some businesses

“The same cannot be said for consumer services during this time, which is understandable given continued restrictions. All eyes will be on the government’s decision on step four of the roadmap, to further help the likes of hospitality, leisure and tourism make the most of summer.“As and when restrictions lift further, we shouldn’t lose sight of how fragile the situation will remain for some businesses, and the government will need to keep a watching brief of what support may need to continue.”

Read more news and views from David Sapsted.

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