CBI see "a Breakthrough Year" for UK Economy, Forecast 8.2% Growth in 2021

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The Confederation of British Industry (CBI) have said they see "a breakthrough year" for the UK economy as they hike their 2021 growth forecast to 8.2%.

In their mid-year forecast for the economy the CBI say they now expect the UK economy to be back to pre-covid levels by the end of the year courtesy of the 8.2% growth rate, while GDP will grow 6.1% in 2022.

This is up from 6.0% and 5.2% respectively in their previous forecast.

The upgrade means the economy will have recovered to pre-Covid levels a full year earlier than had previously been forecast in December 2020.

"There are really positive signs about the economic recovery ahead this year and next. The data clearly indicates that there is pent up demand and ambition across many sectors," says CBI Director-General, Tony Danker.

This puts the CBI's estimation for UK economic growth above that of the Bank of England and the majority of major institutional economists.

A poll of independent forecasts conducted by the UK Treasury shows the average growth forecast for 2021 at 6.8%.

Above: HM Treasury summarise the average and range of independent forecasts for 2021 and 2022 and show the average of this month’s new forecasts.

At their June Monetary Policy Report the Bank of England released forecasts showing they expect the economy to grow 7.25% in 2021, up from a previous forecast in February for growth of 5% this year, as rapid progress with the Covid-19 vaccine and easing of restrictions paves the way for a release of pent-up demand.

The call for above-consensus growth by the CBI comes despite this week's announcement that Covid restrictions would not be fully lifted on June 21 as had previously been hoped by the government.

The decision, when combined with rising cases of Covid-19, risks negatively impacting UK economic activity if it prompts a more cautious stance amongst consumers and businesses.

Nevertheless, the already completed easing of many COVID-19 restrictions, rapid roll-out of vaccines and the unleashing of pent-up demand means that the UK economy is poised for considerable economic growth over the summer, says the CBI.

"But this won’t be felt as strongly by those sectors still working under restrictions. More broadly, stagnant productivity and business investment remain a drag on the longer-term sustainability of economic growth," says a report from the CBI, published on June 18.

The CBI warns that while the UK economy is set to recover to pre-Covid levels this year, business investment will remain 5% below pre-COVID levels.

But it is household spending that the CBI expects to be the "linchpin of this recovery", driving just over a quarter of GDP growth in 2021, and 70% of growth in 2022.

Consumer spending is bolstered by an improvement in real incomes, and households running down some of the excess savings built up over the last year says the CBI.

Their outlook on the labour market is also encouraging as they now expect a much lower peak in the unemployment rate (5.5% in Q3) than they did back in December (7.3% in Q2 2021).

"This is in part due to the extension of the Job Retention Scheme into the autumn, the resilience of the labour market so far, and expectations of a much stronger economic recovery," says the CBI

A temporary boost to government spending on tackling the virus is another significant contributor to growth this year, driving around half of the rise in GDP over 2021.

“The imperative now must be to seize the moment to channel this investment into the big drivers of long-term UK prosperity. That’s why it’s the right time for Government to come forward with far more detailed plans on everything from decarbonisation, to innovation to levelling up," says Danker.

Danker warns that some sectors of the economy continue to face delays and genuine challenges to stay viable.

"It would be devastating for hospitality, events or aviation businesses to fail on what we hope is the last leg of restrictions," warns Danker.