Goldman Defies Consensus in Seeing Rapid U.K. Economic Rebound

The U.K. economy has the potential to stage a rapid rebound next year as the development of a Covid vaccine unlocks growth that’s well above most expectations, according to Goldman Sachs Group Inc.

The nation’s reliance on consumer industries that were hardest-hit by the virus, coupled with its large vaccine stocks and rapid rollout plans means its very well placed to benefit from new jabs, Goldman’s economist Sven Jari Stehn wrote in a report released Friday.

The bank expects gross domestic product to expand 7% next year, almost two percentage points above economists’ consensus, as well as a rally in the pound and U.K. stocks. Bloomberg Economics also sees the country as one of the biggest winners from a successful deployment of a vaccine, with a growth rate of 6% in 2021.

The U.K. is on course to suffer the deepest slump in three centuries this year, but Goldman’s forecasts see the economy regaining its pre-pandemic size by early 2022. That’s a similar time frame to the Bank of England, and is based on the very supportive combination of monetary and fiscal policy in the U.K. It also assumes a Brexit trade deal is struck before the end of the year.

“We see substantial room for bounceback in 2021,” Stehn wrote. The risks to the outlook is posed by the implementation of any Brexit deal, and the prospects of scarring from the pandemic, he wrote.

What Bloomberg Economics Say...

“The pandemic hit the U.K. economy harder than any of its European peers in 2020. This owes much to the government’s failure to lockdown earlier in March and the impact of a soaring death rate on consumer behavior, in our view. If we’re right about the root causes of the economy’s weakness then it follows that the U.K. should be one of the biggest winners from the rollout of a vaccine next year.”

-- Dan Hanson, Jamie Rush, economists. For full report, click here.

Still, others urge caution, flagging the potential harm from Brexit and the long-term impact of the virus on the economy.

“In the U.K. the damage has been done already and it will continue to pick up now more slowly than the rest of the EU,” said Peter Dixon, an economist at Commerzbank AG in London. “In addition, you’ve got the complexities of Brexit to deal with, so I don’t think the U.K. is in a very good place.”

The government has indicated that restrictions on movement and commerce will continue for some time, potentially preventing Britons in large parts of the country from mixing in households and hospitality venues.

“Most of the effects on demand, unemployment, will not be immediate and instead come through more gradually as and when vaccines are rolled out,” BOE policy maker Silvana Tenreyro said on Monday. People may “be more inclined to postpone spending on many good and services until vaccines and reduced health risks actually arrive,” she said.

©2020 Bloomberg L.P.

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