UK economy could grow faster than the US economy
- UK economy set to grow faster than the US economy in 2021
- Barclay’s bank expects UK output to grow at its fastest rate since the second world war
- Amazon retail sales surge by 44% as US economy grows 6.4% in the first quarter of 2021
- Britain’s robust economic recovery supported by Rishi Sunak’s tax cuts and UK house price surge
The UK economy is forecast to grow at its fastest rate since the second world war in 2021 as it turns its back on the COVID crisis and an economic boom transpires as national lockdown restrictions are lifted.
Despite the record slump experienced in Q2 2020, leading investment banking company Goldman Sachs expects the UK economy to grow faster than the US this year as the country races ahead with its vaccination campaign.
British economic forecasting group, the EY Item Club, has also become increasingly optimistic about the UK’s recovery prospects, having upgraded its growth forecast for 2021 from 5% to 6.8%.
Recent analysis has revealed that Britain’s rapid Coronavirus vaccine rollout programme and the ongoing easing of COVID restrictions has fuelled a consumer spending boom in the country.
UK firms have also been better prepared for COVID lockdown restrictions this time around, and many have adapted operations to overcome lockdown challenges.
Last year, the British economy shrunk by 9.8% – the worst performance of any G7 economy. According to Eurostat, the EU contracted by 6.2% in 2020, while the International Monetary Fund (IMF) estimates that the US economy contracted by 3.5%.
However, Britain’s recent economic performance has prompted several banks to upgrade UK gross domestic product (GDP) forecasts. Meanwhile, Goldman Sachs wrote in a note to clients that it expects growth in Britain to eclipse the US.
Goldman Sachs says Britain is set to grow at a faster pace than the US
Goldman Sachs expects Britain to expand by a staggering 7.8% this year, against an earlier estimate of 7.1% and its 7.2% forecast for US growth.
Conversely, the IMF expects Britain to grow by 5.3% in 2021 and predicts a 6.4% expansion for the US.
That said, there have been additional signs of an acceleration in the pace of recovery since the IMF made those forecasts, meaning it could make upward revisions to growth projections for the UK.
Britain’s lead in the race to immunisation is also supporting the country’s recovery outlook. Health Secretary Matt Hancock confirmed that the United Kingdom hit another COVID-19 milestone on Saturday, with more than half of Britain’s population now protected against the virus.
Adding to the optimistic outlook – recent economic indicators have revealed that crucial areas of the economy are moving further into expansion territory.
Goldman Sachs highlighted April’s better-than-expected flash PMI reading and the stronger-than-expected jump in UK Retail Sales data for March to support their argument that Britain will grow faster than the US economy this year.
Bank of England (BoE) Deputy Governor Ben Broadbent was also upbeat about growth prospects, saying he expected “very rapid growth at least over the next couple of quarters” as UK Prime Minister Boris Johnson lifts COVID restrictions.
Unemployment levels are also expected to peak lower with Chancellor Rishi Sunak’s furlough scheme extended until September-end and employment levels pick-up as a robust recovery gets underway.
According to the EY Item Club, unemployment will peak at 5.8% in 2021, versus previous estimates for a rise to 7%. The economic forecasting group expects the jobless rate to fall to 4.5% the following year – 0.5% higher than pre-pandemic levels.
A separate report from the US Labour Department has shown that the employment situation in the United States is improving as the number of people claiming unemployment benefits declined further in the week ending April 24th.
While Jobless Claims in the States remains well above the 200K – 250K range considered a healthy labour market, the recovery supports hopes for a stable post-COVID economy.
US stocks have also hit record highs ahead of the weekend, following data showing that America expanded by 6.4% in Q1 2021.
US economy grows 6.4% in the first quarter of the year
US economic growth surpassed expectations during the first quarter of 2021, with output rising by 6.4% against preliminary forecasts of 6.1%.
During a televised address to the nation, US President Joe Biden said that the US is “ready for take-off” – fuelling hopes that 2021 could be the strongest year for the US economy in 400 years.
Economists have cited America’s vaccine rollout and the Biden administration’s USD 1.9TN stimulus package as the reason for rapid growth, with total GDP now just 1% lower than pre-pandemic levels.
With the vaccine deployment accelerating and coronavirus cases declining as the country eases COVID restrictions, US economic recovery is expected to continue rapidly.
America is now on track to surge above 2019 trends in the next quarter following impressive data revealing a considerable pick-up in economic activity towards durable goods.
According to official data, consumer spending on durable goods surged by an annual rate of 41.4% last quarter, driven by spending on recreational items.
Amazon was one of the largest beneficiaries as sales increased by 44% in the first quarter of the year to USD 108.5BN.
Amazon reports record sales growth in 2021
Amazon sales surged in the three months to March, and the web services giant announced that it made a profit of USD 8.1BN during the first quarter of the year, equivalent to USD 2.7BN a month.
There has been a plethora of positive economic data out of the US, with bumper results from tech firms such as Apple, Facebook and Alphabet.
Amid growing signals that the US will experience an economic boom this year, more US firms are expected to profit as America turns the tide on the COVID crisis.
US data shows that spending on durable goods – automobiles, home appliances, books, electronics – surged in the first three months of the year, spending on recreational goods up by 26%, motor vehicles by 15.1% and household furnishings up by 16.6% on the 2019 trajectory.
Investment in the US residential market has also risen 14.4% above 2019 trends, equivalent to an extra USD 90BN in economic activity.
However, the USA’s services sector expanded at a much slower pace, reflecting months of business closures and limitations on travel, dining and recreational activities.
So, while economists predict an economic boom, it remains to be seen whether the road to life after COVID will be smooth sailing from here on.
The same could be said for the UK economy, albeit several other factors besides the vaccine rollout and declining COVID-19 cases indicate a swift return to growth.
The measures unveiled by UK Chancellor Rishi Sunak in his March Budget is spurring activity in Britain. Many UK firms have rushed to invest in their business to benefit from the tax break Mr Sunak announced, which the Chancellor hopes will help upgrade the post-COVID economy.
Investment opportunities in Britain set to spur growth
On March 3rd, Chancellor Rishi Sunak announced “the biggest business tax cut in modern British history” to encourage UK firms to reinvest into their business and “build back better” as the country emerges from the COVID-induced slump.
The “Build Back Better” campaign, which plans to boost the economy through significant investment in infrastructure, skills, and innovation, supports UK Prime Minister Boris Johnson’s vision of creating a more “Global Britain”.
During his March Budget statement, the Chancellor said that “for every GBP 1 a company reinvests, the UK government will cut their tax bill by up to 25 pence”.
While the new “super deduction” policy is expected to cost the British government approximately GBP 12BN each year, Mr Sunak hopes it will spur investment and help kickstart economic recovery.
Several firms have already taken advantage of the incentive, with data from the Confederation of British Industry (CBI) revealing British manufacturer plans to purchase new plants and machinery were the strongest in over three decades last month.
Meanwhile, separate data from multinational service firm Deloitte revealed that Chief Financial Officers (CFO’s) from some of Britain’s most prominent companies went from least likely to invest in their businesses to most likely to invest in March.
The change has been supported by the ongoing relaxation of lockdown restrictions and Britain’s vaccine rollout, which has also influenced employer decisions to bring back furloughed employees.
According to the Office for National Statistics (ONS), the proportion of British workers on furlough between April 5th and April 18th declined by 4% on the previous two-week period.
The improving situation in Britain is also supporting UK house price growth, which surged at its fastest pace since 2004 in April as home buyers continue to take advantage of the stamp duty holiday and other incentives such as the Help to Buy Scheme.
UK house prices see largest monthly rise since 2004
According to Nationwide Building Society, UK property prices surged by 2.1% in April after recording a disappointing and unexpected slump in March.
The monthly increase beats consensus estimates for a 0.5% monthly gain meaning the UK’s average property price is now 7.1% higher than last year.
Nationwide confirmed that the average cost of a house in Britain is GBP 238,831. While the long-term outlook for the market remains uncertain, the building society expects activity across the housing market to remain reasonably buoyant in the near term.
Although some economists have aired their doubts, many estate agents believe that the global vaccine rollout and increase in UK household savings will ensure that the UK property market records another year of solid growth.
However, rising property prices have cancelled out the benefits of the stamp duty holiday for many prospective buyers and could pose a threat to future activity.
There have also been calls for UK PM Boris Johnson to drop a host of other taxes and make some dramatic changes to current COVID measures that will make Britain lockdown-proof and ensure the success of the UK economy.
With COVID-19 mutations threatening to reverse the UK’s hard-won success and Brexit a constant shadow, the challenges to the economy are yet to be seen in many respects.
However, British firms received some delightful news on Friday as the UK government confirmed that the Financial Services Bill has received Royal Assent and is now law.
Not only does this mark a significant milestone in the shaping of a regulatory framework for UK financial services outside of the European Union, but PM Boris Johnson’s vision to create a more “Global Britain.”