The UK economy is set to contract by 10.3% this year and is unlikely to reach its pre-Covid level until early 2023, according to KPMG’s forecasts on the impact of the pandemic
A second lockdown of even just four weeks could exacerbate the fall in GDP to a drop of 12.65, the firm warns.
However, growth is expected to pick up to 8.4% next year if a vaccine for coronavirus is rolled out by April.
This is one of three alternative scenarios KPMG has developed, based on potential different dates of the vaccine being approved and then rolled out in the UK, and also on a Brexit deal outcome. KPMG’s base scenario assumes that a vaccine will be approved in January, immediately reducing uncertainty, and rolled out by the end of April enabling all social distancing measures to be removed. It also assumes the UK and the EU reach an agreement on their future relationship before the end of the transition period this year.
However, even just a three-month delay in rolling out the vaccine could see GDP growth fall to 7.1% in 2021, instead of 8.4%.
If alternative scenarios, including no deal with the EU next year and limited progress in eradicating the pandemic play out, growth in 2021 could fluctuate by between 8.4% and 4% at the least.
Yael Selfin, chief economist at KPMG UK, 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.’
KPMG predictions indicate a significant spike in unemployment – over 9% in Q4 2020 –as the coronavirus job retention scheme unwinds.
Selfin said: “The pandemic has had a more significant impact on sectors that are more labour-intensive – and the recession will generate permanent change in some of them, meaning there will be a bigger effect on the labour market than the fall in GDP would imply.
‘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.
‘If we get this right, we could come out of this crisis with a better economy.’