The UK economy is likely to be smaller in late 2021 than it was before slipping into this year’s record recession, according to a Bloomberg survey that casts new doubts on the Bank of England’s projections.
Calculations based on the median estimate of economists surveyed this month show that gross domestic product will be about 5% below its pre-pandemic level. The central bank expects production to fully recover at the same point.
The contrast highlights the risk that policymakers underestimate the extent of the damage the coronavirus will inflict on the economy in the long run.
The UK is already recovering from the depth of the recession, as the Government allows more businesses to reopen. But the looming reduction in state wage support programs raises the specter of mass unemployment and a wave of corporate bankruptcies.
Fears about a further rise in infections and the risk of a disorderly separation with the European Union will add to mounting pressure on Finance Minister Rishi Sunak, to extend government aid beyond October, a requirement that it has rejected so far.
The Bloomberg survey also suggests that production could catch up by the end of 2022 if the economy maintains its 2021 growth rates, raising questions about whether the Office of Budget Responsibility is also overly optimistic about the strength of the recovery.
The fiscal oversight agency expects to return to pre-pandemic levels by the fourth quarter of 2022, and any growth deficit could lead it to raise its already stratospheric forecasts of public debt.
While authorities around the world struggle to assess the impact of the worst pandemic in living memory, the scope of the economic fallout leaves little room for policy errors.
The Bank of England’s projections came under scrutiny earlier this month after economists and investors described its short-term assessment of the economy on August 6 as surprisingly optimistic. The Bloomberg survey expects the central bank to keep its benchmark rate at 0.1% but add 50 billion pounds ($ 65.6 billion) to its December asset purchase program.
The survey was conducted from Aug. 7-13, a week in which data showed the economy contracted 20.4% in the second quarter, the biggest drop among advanced industrialized nations. Almost 750,000 people have lost their paid job since March.
Unemployment heads toward a high of 8.1% in the fourth quarter, above the 7.5% peak projected by the Bank of England, and GDP is projected to grow just 6.4% in 2021 after contracting nearly 10% this year.