UK economy: 'It's going to be a difficult few months' says expert

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Institute of Economic Affairs fellow Julian Jessops estimates that the UK will have seen 7.5 percent growth over 2021 – 1 percent higher than was assumed around the October budget announcement and 3 percent higher than the Treasury’s survey suggested at the start of 2021. This makes it, by his prediction, the fastest-growing G7 economy in 2021.

Mr Jessops argues on his blog that while some might dismiss this as a “dead cat bounce” – a temporary spike in growth amidst a falling economy – after 2020, the results are still “much better than expected.”

The idea that the UK may be doing much better than expected is justified by how provably pessimistic many of the predictions over the last year have been.

At the end of 2020 the UK’s growth was expected to be 4.2 percent, lower than that of France and Italy.

Furthermore, a survey in the Financial Times in December 2020 found that most economists didn’t expect the UK to return to its pre-Covid level until the third quarter of 2022.
However, their predictions proved to be incorrect after the reality emerged.

The UK actually surpassed it’s pre-Covid level of GDP in November last year, reaching 0.9 percent – significantly higher than many economists’ predictions of 0.4 percent.

Chancellor Rishi Sunak said the stronger growth was “a testament to the grit and determination of the British people.”

It is important to note that this, says Mr Jessops, is “still much smaller than if it had continued to grow at its pre-Covid trend, and parts are still on life support.”

However, he stated to Express.co.uk: “Going into 2022, the recovery in the UK clearly has more legs, thanks in part to the prospect that the UK will be faster out of the pandemic.

“Every country is facing a cost of living crisis, but wage growth in the UK is relatively strong.

“Business investment is also set to rebound as Covid and Brexit uncertainties continue to fade.”

His blog adds: “the UK recovery ended 2021 with more positive momentum than many of its peers, with GDP rising by about 1% in Q4.

“In contrast, eurozone GDP was probably flat. So while UK GDP regained its pre-Covid level a little later than some (notably the US and France), it has a better chance of pushing on from here.”

However, Mr Jessops’ optimism is not shared by all economists.

Speaking to the BBC, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “GDP almost certainly dropped in December, as households hunkered down in response to the Omicron variant.”

He stated that restaurant diner numbers, transport usage and cinema revenues “point to a pullback in consumer services expenditure” last month, while “Omicron also depressed labour supply.”

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However, he also added: “Omicron looks set to fade almost as quickly as it arrived, thanks partly to the rapid rollout of booster jabs.

“As a result, we expect the government to allow Plan B rules to automatically expire on 26 January and for GDP to bounce back in February.”

The latest Treasury survey estimates that GDP will rise by around 5 percent in 2022.

Mr Jessops added that “the government may need to do more to help low income households in particular.

“But the consensus still looks too pessimistic, just as it was in 2021.”

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