Britain’s economy may have grown 17% in the three months leading up to the end of September, according to the EY Item Club, but slower growth could follow.
Buyers have been splurging during the period as coronavirus lockdown restrictions were lifted, he said.
That’s a rosier vision than that offered by Item Club economists this summer, but they warned that growth for the remainder of 2020 would be much slower.
Growth for the last three months will be 1% or less, they predicted.
“So far the UK economy has done well to recover faster than expected,” said Howard Archer, chief economic adviser of the EY Item Club.
“Consumer spending rebounded strongly, while activity in the housing sector also rebounded, in part due to the stamp duty break. ”
The economy likely grew 16 to 17 percent in the third quarter of the year compared to the second quarter, he said. He expected 12% growth.
Risk associated with trade agreements
While government assistance such as the leave program has provided “much needed support,” growth will now start to fade, Archer said.
The end of the holiday scheme, under which workers had part of their wages paid by the government, will mean higher unemployment and slower growth, forecasters, who use an economic model similar to the Treasury, said.
That said, the UK economy is now expected to return to its pre-pandemic size in the second half of 2023. In July, the EY Item Club did not expect this to happen until the end of 2024.
Official figures from the Office for National Statistics showed last week that the UK economy continued to recover in August, growing 2.1% in the month, as the Eat Out to Help Out program boosted restaurants.
It was, however, less important than economists had estimated and helped slow the estimated pace of the recovery for the year.
As with any economic forecast, there are factors that could speed up or slow down the recovery, economists said.
A vaccine is likely to help the economy, but there are more threats to growth than surprise stimulus.
Factors that could weigh on growth include lower consumer spending, more lockdowns, slow Brexit negotiations between the UK and the EU and spike in unemployment.
“The latest forecasts also indicate that even if new viral outbreaks are contained and major restrictions on economic activity are avoided, consumers and businesses may remain cautious in their behavior for an extended period,” the report said.
The Club’s estimates assume a simple free trade agreement with the EU by the end of the year.
Without an agreement, growth of 4.8% is expected in 2021, down from 6%, while growth in 2022 would be reduced to 2.6% from 2.9%.