While the pandemic has shown that it is impossible to predict what the near future looks like, many experts are now making their economic predictions for 2021 with the roadmap to normality outlined and the easing of restrictions starting. So, what might the economic recovery look like this year?
Unemployment on the Rise
Redundancies were rising at the fastest rate on record towards the end of 2020 even with the furlough scheme, so when this closes at the end of April (after several extensions) it is expected that unemployment will surge as businesses are unable to afford to keep staff on their books. It is predicted that unemployment will peak at about 7.5% in the middle of 2021 (this equates to around 2.6 million people).
Interest Rates Remain Low
Interest rates will also remain low after the Bank of England made two emergency cuts in March of last year down to just 0.1%, the lowest on record. Emergency cuts are usually a temporary measure (such as after the referendum), but it is unlikely that they will rise anytime soon with the economy not scheduled to fully reopen until June. However, some believe that the BOE may have to raise interest rates in order to combat rising inflation.
Growth Expected to Increase Fastest Since 1948
While 2021 should be a historical year for economic growth, it will not feel like it due to the fact that the UK has performed the worst amongst all European economies. The BOE forecasts growth of 7.25%, but even with this growth, it is not thought that the economy will return to pre-pandemic levels until the end of 2022. As explained by Hellenic Shipping News, “While the numbers on both the way down and up will be larger, the end result will be the same”.
Predicted to Be the Last Economy to Recover
This also means that many predict that the UK will be the last major economy to recover from the pandemic. One way for businesses to gauge the economic recovery this year could be to monitor the Forex market to see how the pound is performing. Of course, the impact of Brexit cannot be ignored and somewhat muddies the water when it comes to the health of the economy and what the contributing factors are.
It is hard to predict what the rest of 2020 will look like and, while there are signs of optimism, the fact that it is such a deep hole that the economy is in means that there is a lot of climbing to be done to recover.