EY Item Club, the leading economic forecaster, UK economy is predicted to shrink by 8% in 2020 year. The forecaster further foretells that the fiscal damage to the country’s economy is unlikely to recover until 2023.
The official figures report that the country’s economy shrank by a record 20.4% in month of April. This has set the country towards a grave recession in more than three centuries.
EY Item Club released this report in its first interim update between two regular quarterly ones.
EY UK’s Chief Economist Mark Gregory said, “This is an undoubtedly challenging environment for businesses and forecasting is extremely difficult. We’ve made some significant adjustments to our GDP expectations compared to what the data told us just six weeks ago.”
In April, EY Item Club economists had predicted a decline of 6.8% in output for 2020. But it has now downgraded it further to 8%. The contraction size too is increased from 13% to 15% for second quarter of the year.
In another report released by Organization for Economic Cooperation and Development, the prediction was of UK economy to shrink exceeding any other developed country. The GDP shrinkage is expected to be 11.5% in 2020. In case of a second wave of positive cases or return of coronavirus the shrinkage prediction stands at 14%.
The reports further warn that for UK economy might not recover to its position in 2019 till 2023.
The consumer expenditure might slump 17% in second quarter, EY report warns. It can further decline by 8.7% through the next year before it starts to rebound by end of 2021.
Unemployment will remain to be a major caveat as job loss and health crisis continue.
EY’s group chief economist Howard Archer says, “Many people have lost their jobs despite the government’s supportive measures. This will inevitably have some limiting effect on the economy’s recovery.”
The Social Market Foundation (SMF) suggests that pension funds should be merged into “superfunds” to help invest into long term projects like building roads and communication networks.
A senior researcher at SMF further elaborates, “The best way to support the infrastructure the country urgently needs is to make better use of the billions of pounds held in pension funds that could be profitably invested in helping Britain on its way to a green recovery.”