Tough measures to control the spread of a new variant of Covid in the UK could lead to slower economic growth in the next year than initially forecast, a leading think tank warned today.
The Resolution Foundation says the economy by Easter could be six percent smaller than the UK budget watcher's first forecast last month.
This should reduce economic growth for 2021 from 5.5 to 4.3 percent.
The foundation warns of "stricter, longer-lasting and more widespread" restrictions due to Covid-19 in the next year and said unemployment could "rise sharply".
And she urges the government to put in place support measures for the hospitality and leisure sectors until recovery is ensured.
However, in a glimmer of hope, the foundation also predicts that the introduction of the vaccine will lead to a “speedy recovery” for people who return after the pubs, bars and restaurants restrictions are lifted.
According to the report, lifting restrictions could spark a 1920s-style economic boom – similar to what happened in America after the Spanish flu outbreak.
The report says: “The New Year is expected to have a special feeling for 2020.
The Resolution Foundation says the economy by Easter could be six percent smaller than the UK budget watcher's first forecast last month. Pictured: An almost empty Oxford Street on Boxing Day
The foundation warns of "tougher, longer-lasting and more widespread" restrictions due to Covid-19 next year and said unemployment could "spike" which would lead to a decline in family income across the country. Pictured: An almost empty Oxford Street on Boxing Day
The Resolution Foundation says this economic growth will be reduced from 5.5 percent to 4.3 percent for 2021 as a result
According to the Resolution Foundation, the finances of those with higher incomes have improved (Image: A graph showing the improvement per group).
Those with the highest incomes spend the most on hospitality. Triggering the Resolution Foundation to predict a boom in the hospitality industry if restrictions are lifted
Great Britain is again the fifth largest economy in the world, as the table shows
The UK has once again become the fifth largest economy in the world, despite having suffered a deep recession as a result of the coronavirus pandemic.
According to the Center for Economic and Business Research (CEBR) annual ranking, the UK has skipped India and will continue to advance to seventh place in France in the decade after Brexit.
The UK had slipped behind India to be the sixth largest economy last year, but the Asian nation was pushed back below the UK after a deep recession related to the coronavirus pandemic and a sharp drop in the US dollar rupee.
The UK's rise in the rankings has been seen despite a cumulative GDP decline of 21.2 percent in the first half of 2020 when the first national lockdown, imposed in March, weighed on the economy.
Leading CEBR also forecast that China would overtake America, the world's largest economy, five years earlier than expected in 2028.
& # 39; With a new variant of the coronavirus that significantly increases the rate of infection, the restrictions will have to be stricter and longer than expected a few weeks ago.
& # 39; The restrictions could mean the economy will be 6 percent smaller by Easter than the Bureau of Budgetary Responsibility forecast last month, reducing growth for the full year 2021 from 5.5 percent to 4.3 percent.
"Policymakers should provide targeted support to affected businesses and households, especially in the hospitality and leisure sectors, to bridge the gap to the vaccine-induced return to normal."
Citing Boris Johnson's earlier promise that normal times could return by Easter – due to the introduction of a Covid vaccine – the report urges the government to continue its business support efforts until restrictions are lifted.
Hospitality, leisure and the non-essential retail sector, which is said to be the hardest hit, will need the most support until then, the report adds.
It also warns that after the pandemic ends, low-income families may be the most cautious about spending money again – due to significant losses in traditionally low-income jobs like retail and hospitality.
However, the report says that once restrictions are lifted, the UK economy could enter a 1920s-style economic boom.
According to the report, the British tossed away more than £ 186 billion during the pandemic, with those on higher incomes in particular "adding to their financial buffers" – they were unable to spend as usual.
The report says: "Because less was spent in 2020, we saved like never before."
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The "roaring" 20s: a post-war period of economic growth
The 1920s was a decade of economic growth and widespread prosperity, fueled by recovery from the devastation of the war and deferred spending.
In the aftermath of World War I and a deadly flu pandemic, there was a construction boom, rapid growth in auto sales, and increased demand for consumer goods.
While the boom was felt in Europe and Australia, the economy in America really flourished. The US became the richest country in the world per capita.
Besides an economic boom, the era is perhaps best known for its cultural revolution with parties, jazz music, the demand for Art Deco style and a redefined look for me and women.
The shorter British boom was finally over in 1925. In America, the Wall Street Crash in 1929 brought the era to an abrupt halt and led to the Great Depression, which largely continued in the United States through the 1930s.
“The extra money is held by the same people who drive hospitality spending (higher and middle income families).
“The top companies not only devote more of their consumption to non-essential things like hotels and restaurants, they also use more points.
& # 39; A key judgment for later in 2021 is how quickly social spending will rebound once some semblance of normalcy returns. Our answer is: very quickly.
"As was the case in America's 1920s after the great influenza pandemic, people are desperate to return to social contact."
"Some will actually want to spend more time in restaurants and bars (at least temporarily) than they did before the crisis: there is a lot of lost ground to reconcile."
While the report says the hospitality boom will lead to an increase in employment, the foundation warns it will not solve the wider economic problems.
The foundation says the government must continue its support "well into the second half of next year" to keep the economy moving.
It says: “Even if social consumption will recover strongly in the second half of 2021, this does not mean that everyone will simply sail.
& # 39; A robust recovery must therefore be much broader.
& # 39; When the economy picks up again with the introduction of vaccines and the labor market thaws again with the expiry of the Job Retention Scheme (JRS), the crisis becomes a much more typical downturn: across a wide range of sectors, the Unemployment rises and incomes fall.
"Policy therefore needs to be adjusted. In particular, fiscal policy must move from targeted support for closed sectors to broader support for this recovery."
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