Britain’s economy is likely to see a sharp recovery in 2021 but hard to reach pre-pandemic levels of activity anytime soon, a number of Britain-based experts gave their views to Xinhua on how they expect the British economy to perform in the new year.
Professor Iain Begg at the London School of Economics and Political Science (LSE) told Xinhua that “The UK economy is likely to see a sharp recovery from the second quarter of 2021 onwards as COVID-related restrictions ease and consumer demand recovers.”
He also said he believes Britain’s economy in 2021 will be affected by disruption related to the completion of the country’s withdrawal from the European Union.
Britain ended its membership of the regional bloc after nearly 50 years on Jan. 31, 2020, but has continued to follow Brussels’ trading rules under a transition period ending Dec. 31.
Begg, a research fellow at the LSE’s European Institute, said in an interview, “As an economy heavily dependent on services, and with manufacturing below 10 percent of GDP, the UK’s recovery will rely on sectors, such as hospitality and travel, that had been especially restricted (by the COVID pandemic).”
“Consumer wariness may constrain this recovery and leave the UK lagging behind countries with a stronger industrial base, like Germany,” he said, adding that a return in Britain to the pre-COVID level of GDP is expected before 2023.
“Socially, the two major challenges facing the government will be to manage the fallout from Brexit and to deliver on the ‘levelling-up’ promises to areas in England that were persuaded to vote Conservative in the December 2019 general election,” Begg said.
“There will be tensions because of the deterioration in the public finances as a result of the (coronavirus) pandemic,” Begg said. “The government will have difficult choices to make in reconciling its promises to invest more in upgrading infrastructure in less prosperous areas, continuing the high level of spending on health and social care and coping with the after-effects of Brexit, with the need to curb public deficits.”
Meanwhile, LSE Professor Lorenzo Codogno from the European Institute said that he believes the economy will be hard to reach pre-pandemic levels of activity anytime soon, especially in some sectors.
“Inflation will remain low and monetary policies very accommodative,” he said.
Codogno, who is also founder and chief economist at Lorenzo Codogno Macro Advisors, told Xinhua: “Brexit is a major hardly for the UK, and it may lead to some disruptions in the first quarter of 2021. Other than that, it will be a long-term story, and Brexit negotiations will become a permanent feature.”
He added that economic activity was recovering briskly in Asia and the U.S., and even in Europe activity may recover strongly once mobility restrictions are over.
“The UK economy may rebound more strongly than the rest of Europe once Brexit-related disruptions are over, but the long-term outlook will be affected by the negative implications of Brexit,” he said.
Generous income support and unemployment schemes in Britain and most European countries during the pandemic has meant a suspension of social unrest, he said.
Looking toward the summer of 2021, Codogno said, “Once they (the support schemes) are phased out gradually, the full extent of the problem will emerge, probably by mid-2021.”
For his part, Macroeconomist Professor Patrick Minford from Cardiff Business School is celebrated as the academic who help late Prime Minister Margaret Thatcher steer her financial and economic policies during her tenure at 10 Downing Street.
Minford said, “We have an unparalleled opportunity to remold our policies across the board in order to set the economy on a new course with the ability Brexit gives us to rethink policy that has increasingly been dominated by EU institutions.”
He said a major challenge for Britain will be to bring the North England’s income up to the level of that of London and the South.
“As many people have pointed out, a good start would be to improve the infrastructure of the North, which has lagged behind the South’s, especially in transport,” he said.
Minford said Britain’s most expensive-ever infrastructure project, the HS2 high-speed rail between London and northern England, is the most economical way to produce extra north-south journey and freight capacity needed because of increased congestion on road and rail.
Minford backs HS2 and also wants to see the so-called HS3 east-west rail link across northern England to go ahead as well as fast as possible, together with the improvements promised in the Northern Powerhouse program which would see vast infrastructure projects in northern England, part of the British government’s promised “levelling up” initiative.