Wednesday, April 14, 2021

Hopes for V-shaped recovery fade as UK economy grows 1.8% in May – business live | Business


“Sterling is trading lower this morning after May’s GDP miss, which does challenge recent optimism from the Bank of England about the initial recovery from April’s lows. However, while the initial speed of recovery is important for the UK economy and for sterling, the real issue is the pace of growth over the coming years, which we know very little about right now.

“The stark differences between the OBR’s upside and central scenarios highlights just how crucial assumptions about the level of economic “scarring” is to any forecast for the economy – and how much uncertainty surrounds any economic forecast. Assuming no scarring to the labour market and consumer behavior, and a rapid re-opening of the economy, the OBR envisages GDP recovering its pre-pandemic peak as early as 2021. This is roughly in line with the Bank of England’s last “illustrative scenario”. With moderate scarring, the OBR’s central scenario does not see GDP recovering fully until 2022, more similar to the IMF’s expectations for lasting damage. The bottom line is that nobody truly knows where we will be between these scenarios.”

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