A combination of restrictions lifting, consumer demand, excess savings and a range of government incentives are expected to spark a “strong lift-off” for the UK economy this summer, according to the latest analysis in KPMG’s UK economic outlook.
This boost will reportedly see GDP grow by 6.6%, up from 4.6% forecast in March in 2021 and 5.4% in 2022, allowing the economy to reach its pre-Covid level by the first quarter of next year.
Meanwhile, rising cost pressures and the reversal of temporary tax cuts will add to inflation this year, according to KPMG, but the analysis showed it should “moderate” towards the second half of next year, and average 1.7% in 2021 and 2.1% in 2022.
With spare capacity still in place, the firm expects the Bank of England to keep interest rates on hold in the short-term in order to allow the economy to “fully recover and mitigate the downside risks” to the outlook.
From the onset of the pandemic, businesses have been partially shielded from insolvency both by the direct financial support on offer as well as by temporary measures suspending and relaxing insolvency procedures.
However, once the temporary regime is over, the firm cautioned that there could be a “significant uptick” in the number of company insolvencies, despite interest rates remaining low in the short term. This could mean a peak of roughly 8,000 insolvencies around the turn of the year before numbers fall back to the estimated average of 4,000 per quarter.
Yael Selfin, chief economist at KPMG UK, said: “As restrictions are lifted and consumers flock back, we expect a robust recovery ahead. Some sectors, such as manufacturing and construction, have already recovered most of the ground lost last year, while for others such as hospitality, the big times are now.
“But the possible emergence of new variants of the virus that are less responsive to the current vaccines is still a downside risk, albeit less severe than previously, as the economy has adapted to operating under social distancing restrictions.”
She added: “An expected rise in the level of insolvencies, as government support programmes are withdrawn, could also impact recovery.”