© Reuters. FILE PHOTO: Coronavirus disease (COVID-19) outbreak in London
By Jonathan Cable
LONDON (Reuters) – The UK economy will only narrowly avoid a double-dip recession and return to pre-COVID-19 levels within two years, according to economists in a Reuters poll that said the Bank of England is likely to lower borrowing costs will not evaluate negatively.
The country has suffered the highest number of coronavirus-related deaths in Europe, and the government has put in place tough lockdown measures to stop the spread of the virus and strike a hammer blow to the dominant service industry.
The gross domestic product should shrink by 3.0% in this quarter. This was the result of the survey of around 70 economists from February 8 to 11, more than double the decline of 1.4% forecast last month. Conversely, the median for the fourth quarter was revised from previously 2.0% to 0.4% growth.
However, the UK is among the leading countries in introducing vaccines to its population and GDP was expected to grow 4.7% in the second quarter as some restrictions are likely to be lifted. In Q3 and Q4 it will grow 2.7% and 1.5% respectively.
“The UK’s success in vaccinating high-risk groups and the sharp drop in COVID-19 cases suggest the government may make plans to reopen schools on February 22nd … followed by non-essential retailers in the second half March and the consumer services sector in the second half of April, “said Samuel Tombs of Pantheon Macroeconomics.
For the full year 2021, the growth forecast has been lowered from 4.9% to 4.7%, while the median for 2022 has been revised from 5.3% to 5.5%.
When asked how long it would take for the economy to hit pre-COVID-19 levels, 18 said within two years. One said within a year and nine said it would take over two years. Last month, 14 out of 23 said it would take over two years.
Reuters Survey – Economic Outlook for Great Britain – February 2021 https://fingfx.thomsonreuters.com/gfx/polling/qmypmwoexpr/Reuters%20Poll%20-%20UK%20economy%20outlook%20-%20Feb%202021.PNG
The UK is also grappling with the additional headache of Brexit, and just under half of UK companies exporting goods have been in trouble since the start of the year caused by the shift in trading conditions with the European Union, a poll on Thursday found .
Trade analysts believe that some of the additional costs and red tape will be permanent, and the Bank of England has forecast that they will cut trade by 10% in the long run compared to a smooth deal.
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Last year the BoE cut the key rate to 0.1% and restarted its bond purchase program to support the economy. The median values of the survey suggest that this ultra-loose monetary policy will end in 2024 at the earliest.
There had been talk of the bank taking borrowing costs negatively – and the markets had priced it in – but 30 out of 34 economists who responded to an additional question said it was unlikely or very unlikely. Only four said it was likely.
“An economic recovery from the spring and a sustained spike in inflation towards the BoE’s 2% target during 2021 will likely dispel remaining expectation that the policy rate could fall further,” said Berenberg’s Kallum Pickering.
(For other stories from the Reuters Global Economic Poll 🙂
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