- The Bank of England expects the UK economy to grow by 7.25% this year.
- UK inflation is likely to exceed 3% for a temporary period.
The UK economy looks to be in rude health with economic growth picking up sharply over the last quarter. According to the latest Bank of England (BoE) report, the recovery in economic activity is ‘most pronounced’ in the consumer-facing services sector after Covid restrictions were loosened in April, with output in some sectors ‘around pre-Covid levels’. The BoE expects the UK economy to grow by 7.25% this year, supported by the successful vaccination program and continued unwinding of lockdown measures, while the Confederation of British Industry (CBI) is more bullish and expects UK GDP to grow by 8.2% this year and 6.1% next year.
This bullish backdrop may come under pressure when the Government’s furlough scheme ends at the end of September. The Office for National Statistics (ONS) said recently that the percentage of workers on furlough has dropped from 20% in late January this year to 7% in late May, although this still leaves 1.5 million workers on the scheme. The end of Q3 will be an important time for the government if they are to get unemployment back down to pre-covid levels.
Price pressures in the UK are also pushing higher with annual inflation hitting 2.1% in May, above the central bank’s target. The BoE expects inflation to exceed 3% for a temporary period, driven higher by energy and commodity prices. This outlook has prompted the market to bring forward thoughts of UK interest rate hikes, although if the recent developments in the US are anything to go by, the BoE will hold back on hiking rates until hard data makes it difficult to avoid.
UK data releases will now play an
