The UK economy has contracted less than expected during the third lockdown in Q1 2021 and could be on course to recover to pre-pandemic levels by the start of 2022 – one year earlier than previously expected, according to the new economic analysis released by PwC.
The full edition of the June 2021 Economic Outlook has found that the UK economy contracted by 1.5% in the first quarter of 2021, which is 18 percentage points lower than Q2 in 2020. In April the UK recorded monthly growth of 2.3% for the third month in a row meaning that 83% of the growth lost from the first lockdown has now been recovered. This upward trend continued through May, June and is expected to continue through July.
In acknowledgement of the uncertainties surrounding future variants of Covid-19, PwC prepared two projections for a ‘quick’ and ‘slow’ recovery. In the ‘quick’ recovery the UK could report growth of 7.2% in 2021 and return to pre-pandemic levels by the end of Q1 in 2022; in the slow recovery projection growth could be 6.5% and recover fully by the end of 2022.
Jonathan Gillham, chief economist at PwC says:
An uneven recovery across sectors
PwC expects most sectors to return to growth in 2021, albeit at uneven rates. At the top end, the health and social sector, construction and education are likely to lead growth in 2021, growing between 9%-23% under our ‘quick recovery’ scenario and between 7%-19% under the ‘slow recovery’ scenario.
Already surpassing their pre-crisis levels, growth in construction and education sectors are expected to be supported further by growing demand for larger properties post-lockdown, home upgrades and education support to help school children catch up from their lost learning last year.
But lingering effects from the pandemic will drag on growth in the hospitality and entertainment sectors. Despite expected strong growth, both sectors are likely to remain 34%-40% and 23%-26% below their pre-crisis levels by the end of 2022.
Hoa Duong, economist at PwC, says:
Unemployment falls but inflation rises
The health of the labour market appears to be improving. The headline LFS unemployment rate fell to 4.7% in the three months to April, down from 5% in the previous quarter. It is expected the unemployment rate will average around 5% in 2021, rising to a high of around 5.5%.
Hannah Audino, economist at PwC says:
Inflation is expected to peak between 2.5% and 2.8% in Q4 this year, and then to gradually return to target from 2022 onwards. In the short term, inflation is unlikely to follow a smooth path, with multiple and opposing factors feeding irregularly into the monthly data.
Read the full Price Waterhouse Coopers report here.