Uncertainty remains the 'new normal'
EY ITEM Club believes the impact in Q4 2020 from the national lockdown in England and other major restrictive measures should be markedly less than occurred in April, and overall in Q2 2020, following the March restrictions. The curbs on activity this time around are less severe, with schools, colleges and universities remaining open. Additionally, some lessons have been learned and experience gained in keeping activity going during the lockdown. Nevertheless, the downgrade reflects an expectation of a contraction of around 4% quarter-on-quarter (q/q) in Q4. Despite an improved medium-term outlook, the next few months will remain challenging.
And uncertainty remains a feature of life. In addition to no clarity on the timing and pace of the roll-out of the vaccine, the negotiations on a Brexit trade deal with the EU remain unresolved. The forecast assumes there will be a limited deal agreed, but there is clearly a downside risk that this will not happen.
However, while the roll-out of the vaccine remains uncertain, sentiment may well recover before the roll-out is anywhere near complete. Vaccinating front-line workers and the vulnerable will both increase the capacity of the health care system and reduce the burden on families. As case numbers and deaths fall, confidence is likely to return, and output could benefit faster than the current forecast assumes. For now, EY ITEM Club expects the UK to grow by 6.2% in 2021.