UK economic growth to smash official forecasts this year

The UK economy will grow faster than official forecasters expect this year and the rate of expansion will be higher in the long term, according to a new report released today.

Ratings agency Fitch says the British economy will grow 6.6 per cent this year, higher than the Office for Budget Responsibility’s four per cent forecast.

The successful vaccination programme in the UK enabled policymakers to lift economic restrictions quicker than other rich nations, providing a boost to the economy throughout the second quarter.

The relatively earlier reopening of the UK economy has dampened British consumers’ concerns about catching Covid and driven spending to similar patterns seen before the pandemic, Fitch said.

The link between rising Covid cases and weaker economic activity has been severed as consumers have acclimated to living with the virus.

The OBR does think the UK economy will grow faster in 2022. However, its 1.7 per cent growth forecast for 2023 is significantly lower than Fitch’s prediction of a 2.2 per cent expansion in output.

The UK economy is anticipated to grow faster than both the US (6.2 per cent) and Eurozone (5.2 per cent) this year.

According to the Office for National Statistics, the UK economy grew just 0.1 per cent in July.

Fitch upped its inflation forecast for the UK, hiking to reach 3.4 per cent annually by the end of this year and four per cent in early 2022. Despite both these figures being above the Bank of England’s target, the ratings agency does not expect the Old Lady to hike rates until 2023. 

According to the ONS, consumer price inflation and input inflation currently sit at 3.2 per cent and 11 per cent on an annual basis.

Ongoing worker shortages and sustained supply chain snarl ups could derail the economic recovery, Fitch noted.