Fiscal watchdog the Office for Budget Responsibility (OBR) is predicting the economy will recover to pre-crisis level by the middle of 2022 – six months earlier than previously expected.
Unemployment caused by the pandemic will be lower than expected, peaking at 6.5 per cent, down from the 7.5 per cent forecast last November.
The OBR hiked its outlook for gross domestic product (GDP) for 2022 to 7.3 per cent from 6.6 per cent previously.
But, delivering his second full Budget, Chancellor Rishi Sunak warned that the crisis will do “profound damage” to the economy.
While upping the outlook for next year, the OBR slashed its GDP forecast for every other year until 2025, including a cut for this year to 4 per cent from the 5.5 per cent growth previously pencilled in. This follows the record 10 per cent plunge in 2020.
The OBR also laid bare the toll on the public finances from more than £400 billion of Covid-19 support to businesses and households. It is predicting borrowing will soar to £355bn in 2020/21 – lower than the £394bn first forecast but still 17 per cent of national income and the highest level since the Second World War.
Professor Graeme Roy of the University of Glasgow said: “There was a remarkably more upbeat tone [from the OBR] about the speed of recovery.
“Driven by rapid roll-out of vaccines, the OBR now predict that UK GDP will recover to pre-pandemic levels by the middle of 2022 – six months earlier than previously forecast. In contrast, the Scottish Fiscal Commission’s latest forecast is that it will be early 2024 before the Scottish economy fully recovers.”
Suren Thiru, head of economics at the British Chambers of Commerce, noted: “The OBR’s central forecast provides a more upbeat outlook for the UK economy with the vaccine rollout expected to drive a faster recovery.
“Even with the mass vaccine rollout, the economic scarring already caused by the pandemic, including structural unemployment, rising private debt levels and weak investment, may mean that any recovery is slower than the OBR predicts.”