- The EY ITEM Club forecasts UK GDP contraction of 3-4% quarter-on-quarter in Q1 2021 then improvement from Q2 onwards.
- No contraction expected to have occurred in Q4 2020, despite tighter COVID-19 restrictions.
- Following a better-than-expected 10.1% GDP contraction in 2020, the EY ITEM Club forecasts growth of 5.0% in 2021, 6.5% in 2022, 2.0% in 2023 and 1.8% in 2024.
- UK economy forecast to regain pre-COVID-19 peak in Q3 2022, sooner than the 2023 and 2024 dates predicted in earlier forecasts.
THE Channel Islands are better placed than many other jurisdictions in dealing with the ongoing economic risks and uncertainties brought about by the pandemic and BREXIT, more than 120 Guernsey and Jersey attendees on EY’s ITEM Club Winter Forecast: outlook for the Channel Islands webcast were told.
It seems as though the majority of the audience agreed with this sentiment. When asked how they felt the Channel Islands’ economies have been impacted in relation to the UK’s, 94% of respondents felt the Channel Islands have being less impacted than the UK, with 70% of respondents even agreeing or strongly agreeing that the Channel Islands will be more attractive places to live and work post-covid.
Martin Beck, EY’s Senior Economic Adviser from ITEM Club who led the session, said:
“The Channel Islands have performed well internationally in responding to the public health challenge of Covid. But this has not left Jersey and Guernsey immune to the pandemic’s economic damage. As the latest EY ITEM Club report sets out, the economies of the islands look to have suffered an unprecedented hit last year, and the risks around a hoped-for recovery this year are plentiful. But the rollout of vaccines offers the prospect of some return to normality as 2021 progresses. Pent-up demand, high levels of households savings and a global economic rebound should all aid the Channel Islands in repairing Covid’s economic damage.
“The prospect of a slow recovery in tourism, headwinds to the financial sector from ultra-low interest rates and threats to the Islands’ tax competitiveness mean economic recovery won’t be without its challenges. But the financial strength of Jersey and Guernsey suggests that, while the future is hardly lacking in risks and uncertainties, the Channel Islands should be better placed than many in dealing with them.”
Mr Beck has also been working alongside ITEM Club to produce a special report for the Channel Islands, exploring how the islands have been affected by the key events of the past year, namely Brexit and covid, and how these are likely to impact on the Channel Islands economies over the coming year. The report is due to be released in early February.
Andrew Dann, EY’s Channel Islands Managing Partner, who hosted the webinar said:
“Whilst there are always uncertainties with forecasts, this year even more so than usual, early indications from the report suggests that the Channel Islands are fairing relatively well. Although both islands’ tourism and hospitality industries have been significantly impacted, the size of our financial sectors, which have the digital and remote working capabilities to quickly and efficiently adapt to change, have proved to be pivotal in protecting the local economies. When participants on our webcast were asked how much of their additional savings they have accumulated during the crisis they would be likely to spend once restrictions began to lift, 60% said they would spend some, or most, of their extra savings, which is positive news for the islands’ economies as local businesses look to bounce back.”
Key EY ITEM Club Winter Forecast findings for the UK economy
According to the Winter Forecast, the UK economy looks likely to avoid a double-dip recession thanks to a better-than-predicted performance in November 2020. With the economy contracting by just 2.6% in November, despite the impact of a month-long England-wide lockdown and other restrictions across the UK, the EY ITEM Club now expects the economy to have had a flat performance across the fourth quarter. While the latest COVID-19 restrictions are expected to cause a 3% to 4% contraction in Q1 2021, the absence of a contraction in Q4 2020 means the UK may – just – avoid its first double-dip recession since the 1970s.
Vaccine roll-outs are underway and a Free Trade Agreement with the EU has been secured, putting the UK in position for a steady economic recovery from Q2 2021 onwards. The latest forecast predicts growth of 5.0% in 2021, 6.5% in 2022, 2.0% in 2023 and 1.8% in 2024. With a better-than-expected Q4 performance and the Office for National Statistics revising earlier GDP data upwards, the EY ITEM Club now estimates that the UK economy shrank by a record 10.1% in 2020, an improvement on its December forecast of an 11.6% contraction.
Positively, the point at which the UK economy is expected to regain its pre-COVID-19 peak is inching forward, with this now forecast to happen in Q3 2022 – an improvement from the 2023 and 2024 dates predicted in earlier forecasts.
View the full forecast here https://go.ey.com/2Yx9c3s