Economic Review – May 2021

Posted on 07 June, 2021

BoE upgrades growth forecast
The Bank of England (BoE) has significantly increased its 2021 growth forecast, as survey evidence continues to highlight a strong economic rebound, fuelled by the easing of lockdown restrictions and rapid vaccine rollout. In early May, the BoE revealed its latest predictions for the UK economy, which included a growth forecast of 7.25% for 2021. This was significantly above February’s 5.0% estimate and represents the fastest annual rate of growth in over 70 years. The upgrade largely reflects the successful vaccination rollout, which the BoE believes will boost consumer confidence and pave the way for a mini-spending boom as lockdown restrictions continue to ease. The Bank’s Governor Andrew Bailey, however, was also keen to strike a relatively cautious note, likening any recovery to “more of a bounce back” than a boom. He added, “Let’s not get carried away. It takes us back by the end of this year to the level of output that we had essentially at the end of 2019. That’s two years passed with no growth in the economy.”….

Inflation rate rises sharply
UK inflation more than doubled in April and prices look set to continue climbing for the rest of this year, although policymakers generally expect such a rise to prove temporary. Data released by ONS showed the Consumer Prices Index (CPI) 12-month rate – which compares prices in the current month with the same period a year earlier – rose to 1.5% in April, its highest level for over a year. While the figure was only slightly above analysts’ expectations, it did represent a considerable jump from 0.7% in March. ONS said the sharp rise largely reflected a jump in prices from the weak levels recorded during the depths of the pandemic. Specifically, higher clothing and petrol prices were both significant upward contributors, while gas and electricity prices rose sharply following an increase in the default tariff cap, compared with a cut during the same month last year….

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