The UK is in a strong position to perform well
Thanks to the furlough scheme and businesses adapting to life under lockdown, the jobs market is emerging from the crisis in a better state than expected. Although unemployment is higher than just before COVID-19 struck, the increase in joblessness has been much smaller than most forecasters feared and a shadow of what was seen during past economic downturns, despite a comparatively huge blow to output.
Now that people are returning to working, shopping and socialising, the UK is well-placed to achieve a strong bounce-back in growth. With the economy shrinking so much compared to most other advanced economies, it means there’s more lost ground to make up. UK consumers are particularly big spenders on consumer services, which should magnify the economic boost from life returning to normal. Additionally, the UK’s approach to measuring public sector output will create positive gains for GDP. Moreover, a deficit in tourism with the rest of the world means growth should, perversely, gain from continued obstacles to international travel.
Another powerful impetus to growth should come from households’ savings dropping back from the very elevated levels reached during the pandemic. Involuntary saving contributed to 2020 seeing the biggest rise in households’ net worth since 2016. A return to the typical, pre-pandemic, household saving ratio would be enough to fuel a strong rebound in consumer spending. Households going further and spending some of the £200b of excess savings built up since early 2020 would make that rebound even stronger.