KPMG forecasts a decline of UK GDP by 2.6% for 2020, this is on the condition that the COVID-19 pandemic will be contained by the summer, with a predicted sharp recovery during the first half of 2021 as uncertainties that surround the dissipate.
If an even more enduring outbreak would occur, it may prompt a decline of 5.4% this year. Business investment would be particularly hard hit, along with consumer spending, due to COVID-19 related uncertainty and disruptions.
KPMG offer a flat growth forecast for the second half of this year, but also offer a forecast of a sharp recovery in the first half of 2021, with a 1.7% UK GDP growth in 2021.
A contraction of 2.6% in the UK economy during 2020 is expected, due to the impact of the COVID-19 virus, this is according to KPMG UK’s most recent quarterly economic outlook, however a more protracted outbreak may result in perhaps, a more severe effect than the experienced downturn in 2008-2009. In the case of either scenario, the economy is expected to recover at the latest, by the second half of 2021.
The main scenario that KPMG has offered assumes that the measures put in place for public health will stem the rising number of cases by summer.
If this is the case, then the expectations are that the economy will remain flat in the latter half of the year, and will have a strong recovery moving into the first half of 2021, as the uncertainties around the pandemic dispel.
This will see UK GDP decrease by 2.6% this year, but then grow by 1.7% in 2021. However, in the case where the pandemic persists up until the latter half of next year, GDP may contract by 5.4% this year, then a further 1.4% in 2021.
More action will be needed to shore up the UK economy
With recent measures announced by the Chancellor, the significant disruption to economic activity during the first half of the year may see unemployment peak at a relatively low figure of around 5.6% entering May.
KPMG’s predictions are that it will gradually ease to around 4.1% by Q1 of 2021, which will leave the labour market relatively tight once again.
The protection of jobs and incomes will provide in the short term, much needed support of the besieged households of the UK.
Due to the recent quarantine measures, which includes the restrictions on social gatherings, businesses that sell consumer goods and services, are set to face a significant fall in demand. The disruption in the supply chain, as well as loss of workforce and workplace shutdown, will challenge importers and exporters all at the same time, as UK’s key trading partners also head towards a recession. A low inflation, however, may leave the Bank of England room for monetary expansion in order to combat both economic downturn and the turbulence in markets, but with record low interest rates, measures of more creative stimulus will need to be used.