This growth projection comes as the economy shrank by 9.8% in 2020, the worst performance in the G7

The British economy is forecasted to grow much faster this year after businesses adapted better to coronavirus restrictions and consumer spending booms as lockdown measures are relaxed.

In fact, the projections suggest that the growth rate will be at the fastest rate since the second world war. Businesses and households are now preparing for looser controls this spring, as the British economy rebounds from the COVID-19 pandemic.

The EY ITEM Club, a leading UK economic forecasting group, which produces quarterly economic forecasts, special reports and forecasts for the financial services sector, has already upgraded its growth forecasts for 2021. This upgrade comes after a stronger start to the year than expected and as rapid progress with the vaccine programme enables a swift return to relative normality.

The EY ITEM Club reports that it now expects the British economy to grow by 6.8 per cent in 2021, which represents a sharp upgrade on the five per cent growth rate it had estimated in January. This would mark the fastest annual growth in national income since 1941.

The British economy shrank by 9.8 per cent in 2020, the worst performance in the G7.

The economic forecasting group explained that the improved near-term outlook means the British economy is expected to attain its pre-pandemic peak by the middle of next year, helped by a boom in consumer spending after a rise in saving by wealthier households during lockdown.

Consumer confidence increased at the fastest rate in a decade

There is more good news for Britons, as consumer confidence increased at the fastest rate in a decade in the first three months of 2021, as the roadmap out of lockdown fuelled optimism. Deloitte Consumer Tracker has reported that every measure of confidence from the state of the economy to the general wellbeing and personal debt levels increased over the period.

According to the Deloitte Consumer Tracker, “the UK is primed for a sharp snapback in consumer activity… . High levels of saving, the successful vaccination rollout and the easing of the lockdown set the stage for a surge in spending over the coming months”.

The EY ITEM Club is predicting that unemployment will peak at lower than previously expected levels, as furlough support continues and companies start hiring again in step with the relaxation of lockdown. Using the Treasury’s economic models to produce its forecasts, the Item Club said it expected unemployment to reach 5.8 per cent by the end of 2021, down from the seven per cent jobless rate it was predicting in January.

Projection for even lower unemployment figures moving forward

The projection is that unemployment would even go lower to 4.5 per cent by the end of 2022. The unemployment rate was four per cent before the pandemic struck.

Younger workers have been among the most affected by job losses or reduced employment opportunities during the pandemic. The ITEM Club is pointing to the importance that as the economy recovers, businesses step up by providing opportunities to support younger workers back into employment and invest in the skills and training that many have missed out on over the last year.

Howard Archer, chief economic adviser to the ITEM Club, argued that, “the British economy has proven to be more resilient than seemed possible at the outset of the pandemic. Businesses and consumers have been innovative and flexible in adjusting to COVID-19 restrictions and, while restrictions have caused disruption, lessons learned over the last 12 months have helped minimise the economic impact”.