UK economy set to reach pre-Covid levels in early 2022, says OECD

The UK economy is recovering and is expected to reach pre-crisis levels at the beginning of 2022, according to the OECD.

A new report says that output rose strongly in the first half of the year as restrictions were eased and the economy gradually reopened, although growth has since slowed due to supply and labour shortages.

The report predicts that output will rise by 6.9% in 2021, before moderating to 4.7% in 2022 and 2.1% in 2023.

Consumption is expected to be the main driver of growth but is likely to slow as government support is wound down and prices continue to rise.

Meanwhile, business investment will improve but continues to be held back by uncertainty, the OECD said.

Increased border costs after Brexit are weighing on imports and exports, and inflation is expected to keep rising due to higher energy and commodity prices and continuing supply shortages.

Inflation is expected to peak at 4.9% in the first half of 2022 and then fall back towards the 2% target by the end of 2023.

“Monetary policy should tighten gradually to bring inflation back to target over the medium term, as price pressures show signs of becoming persistent,” the OECD said.

“Fiscal policy should continue to support the economy and become more targeted to aid economic restructuring.

“Boosting training and career counselling programmes can facilitate economic reallocation and ease job transitions. Government programmes should focus on providing certainty on long-term issues such as the transition to net zero in order to support investment.”

The report adds that it will be important to monitor the effects from phasing out fiscal support measures on businesses and households, in order to avoid the risk of tax increases “derailing the recovery”.