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The UK economy could be up to 6% weaker in early 2021 than expected in initial forecasts.

The latest report from the Resolution Foundation found that due to the new Covid-19 restrictions to stop the rising infection rate it is likely that the country’s economy for 2021 will be negatively impacted.

The report said that the duration of those restrictions will determine the effect on the economy.

The report said that a possible path for the economy, takes the Office for Budget Responsibility’s November forecast and assumes that monthly output remains at its November level (reflecting the fact that Tier 4 is the equivalent of repeating the second lockdown) until Easter before returning to its forecast path (which included the impact of some ongoing restrictions).

This would see the economy being 6% smaller by Easter than forecast by the OBR just last month and reduce growth for 2021 as a whole from 5.5% to 4.3%.

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Sectors reliant on social consumption, specifically hospitality, leisure and non-essential retail, will remain hardest hit and government support should be focused on them, said the Resolution Foundation report.

The thinktank also said that widespread vaccination in 2021 would lead to a swift drop in deaths from coronavirus and enable a gradual return to normality. It assumes that those over 65 will be vaccinated by Easter.

The report said spending will bounce back very quickly once normality is achieved and it should lead to a big labour market boost. The report believes this improvement will be noticeable towards the second half of 2021.

Nevertheless, “2021 is going to be a rough ride. The early months of the year will try the patience of a nation fatigued by the trauma that was 2020. And with unemployment rising and incomes possibly falling in 2021, it certainly won’t be roaring for everyone”, said the report.

By Caoimhe Toman

Source: ShareCast

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