The UK economy is unlikely to reach its pre-Covid level until early 2023, according to new forecasts.
KPMG’s latest quarterly economic outlook forecasts UK GDP will plunge 10.3 per cent for the year, downgraded from the 7.2 per cent predicted in June.
However, a second lockdown of even just four weeks could leave GDP dropping 12.6 per cent.
Positive advancements in the development of a coronavirus vaccine suggest the pandemic could be overcome by the middle of next year.
If that is the case, KPMG expects growth to pick up 8.4 per cent if a vaccine is rolled out by April, with the economy reaching pre-Covid levels by early 2023.
The base scenario assumes approval of a vaccine in January which will be rolled out by the end of April, allowing social distancing measures to be approved.
But even just a three-month delay in rolling out the vaccine could see GDP growth fall to 7.1 per cent next year, instead of 8.4 per cent, according to KPMG’s report.
Yael Selfin, KPMG’s chief economist said: “While it feels like the worst of the Covid-induced economic crisis is behind us, there are still many challenges.”
“There could be a second wave of infection this year, although we expect any future lockdown to be less severe – and the timing and speed of the economic recovery will be impacted both by vaccine developments and Brexit outcomes.”
The report also emphasises concerns that the end of the job retention scheme in autumn will trigger mass unemployment.
Read more: UK firms must return to the office to revive the economy, says CBI boss
KPMG forecasts the unemployment rate rising to nine per cent in the fourth quarter, averaging 5.9 per cent this year and 8.2 per cent in 2021.
“The government has an important role to play. Not just in continuing to provide short-term support to the economy but in readying the UK for a more productive future, including upskilling a significant part of the workforce and upgrading the UK’s telecommunications network”, Selfin adds. “If we get this right, we could come out of this crisis with a better economy.”
– City AM