It could be four years before the UK economy returns to the size it was before the coronavirus lockdown, according to a new analysis.
EY Item Club forecasts that the economy will shrink by 11.5% this year, worse than the 8% predicted a few weeks ago, followed by growth of just 6.5% next year.
The economy is now not expected to match its Q4 2019 size until late-2024 — much later than the early-2023 prediction from the June forecast. And the economic forecasting group now expects the GDP contraction for Q2 2020 to come in at a record 20% — downgraded from the 15% contraction predicted last month.
On a more positive note, however, the economy is anticipated to return to growth in Q3 2020 with expansion of around 12% quarter-on-quarter.
“Even though lockdown restrictions are easing, consumer caution has been much more pronounced than expected,” said Howard Archer, chief economic advisor to the EY Item Club.
“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.”
Echoing that sentiment, EY’s UK chief economist, Mark Gregory, warned in a podcast on Monday that the country is in for a “long haul”.
He said that hopes for a V-shaped recovery — with a very quick return to pre-coronavirus levels of activity — now seem “very optimistic”.
Chancellor Rishi Sunak may well need to announce a further boost in spending in the autumn, to tide the economy over and to embed some recovery, Gregory added.