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UK private sector set for summer rebound as economy reopens

Britain’s private sector is on course to a summertime boom, with growth anticipated to be at its highest level in six years, as the economy reopens.

The Confederation of British Industry (CBI) expects private sector activity to grow 32% in the next three months — marking the strongest predictions for growth since June 2015.

Private sector activity rose 24% last month, according to CBI’s figures.

Growth in business & professional services firms is expected to grow by 48% and manufacturers by 36%, the strongest growth since April 2014 and March 2017, respectively.

Expectations for growth in distribution sales are at their highest since February 2020, up 15%.

Meanwhile, consumer services firms have tempered their expectations relative to last month, and now expect activity to remain flat in the next three months, increasing 1% from 10%.

“Economic growth appears to be poised for lift-off over the summer. But this is a recovery that will be felt differently across sectors: while the outlook has improved considerably across the business & professional services and manufacturing sectors, consumer-facing firms seem to anticipate trouble in getting off the ground,” Alpesh Paleja, lead economist at CBI, said.

The composite survey, conducted between 24 March and 15 April showed private sector activity was flat in the first quarter of the year (+1%, from -13% last month).

CBI said this was the first time in almost two years that activity has not fallen.

In the last three months, business & professional services firms reported a marginal rise in activity (+5%, from -5%).

Manufacturing activity rose by 3% and consumer services activity to -2% from -38% – for the latter, this was the first time that business had not fallen since September 2019.

Sales volumes across the distribution sector (-8% from -23%) continued to fall, but at a slower pace, CBI said.

The outlook follows similar forecast by EY’s Item Club, which expects the UK economy to grow at its fastest rate since the Second World War this year thanks to a stronger start than expected. It also looks set to outpace growth in the US.

It comes as businesses have adapted better to COVID restrictions and consumer spending has boomed as lockdown measures begin to relax.

Rapid progress with Britain’s vaccine rollout programme has also meant a quicker return to normality.

The group said it now expected UK GDP to grow by 6.8% in 2021, a significant upgrade on the 5% growth rate it estimated in January. This would mark the fastest annual growth in national income since 1941.

The UK economy shrank by 9.8% last year. Although this was against the 9.9% initially estimated, it was still the worst performance in the G7 and the worst annual performance for more than 300 years.

It said the improved near-term outlook means the UK economy is expected to return to its pre-pandemic peak by the middle of next year, and suffer less long-term economic “scarring”. This is three months earlier than previously estimated
Source: Yahoo Finance UK

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