EY analysis warns of potential for long-winded economic recovery
New analysis from the EY Item Club has hinted that the UK economy may not return to pre-pandemic levels until the year 2024.
EY has forecast unemployment to increase by nine per cent and the economy to shrink by 11.5 per cent this year, already more severe than the eight per cent contraction over 2020 that they had predicted in June.
EY says that the reluctance of consumers to venture out and spend will weigh on the economy, with growth hampered further by low business investment which will make the recovery drag on for longer than anticipated.
Howard Archer, the EY Item Club’s chief economic adviser, 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."
The news comes in contrast to what the Bank of England’s chief economist Andy Haldane told MPs last week, when he said that the economy has “clawed back” around half the decline in output that was seen during the peak of the Covid-19 lockdown back in March and April.
Haldane said that there would be a swift recovery, echoing comments which he had made the previous month.
The government has introduced a wave of new initiatives in an effort to stimulate consumer spending, including a VAT cut on hospitality and a pledge to pay employers a cash bonus of £1,000 for every furloughed employee who remains in a job by January 2021.
The Bank of England has also committed expand quantitative easing by £100 billion to help bolster the recovery.