The economic outlook for 2021, as I see it, based on a review of several articles, is one of cautious optimism. It’s looking like being another year of ups and downs, hopefully not as extreme as 2020, but overall positive. As ever, I try to focus on the long-term perspective, which is most relevant for investors.
More Pandemic Pressure on UK Economic Outlook, 2021
Top of mind nowadays, of course is still COVID-19. Vaccine roll-out is a major cause for optimism though, even if ‘normality’ is still several months away. It’s clearly going to represent a drag on the economy, especially in the first quarter, but most forecasters expect it to be less negative than last year.
Brexit – Will It Ever End?
Brexit has happened. There are border issues for exporters of fresh foodstuffs, but I expect these to be resolved soon. I see this as very much a short-term issue.
The UK economic outlook in 2021 is much more dependent on financial services than fish exports. Sorry, Scots fishermen, but that’s the truth. According to the Governor of the Bank of France, the UK has already (by mid-January), lost 2,500 financial services jobs and €170bn of assets to France. Undoubtedly a bit of French PR going on there, but a serious threat, as Brexit offered nothing to this sector, which accounts for 6.5% of GDP. This is one to watch for the long run, I’d say.
Unemployment and Housing
The current housing boom is almost all fuelled by the stamp duty cuts, due to end in March. If they do end then, expect a slump in property prices and activity in the sector. Add to that already high unemployment and further job losses as furlough finally ends, and there are some significant downward pulls on the UK economic outlook for 2021.
2021 UK Economic Outlook from Deloitte and KPMG
Both firms produce regular forecasts and surveys of UK industry. Deloitte’s latest view is that the UK is due a bumpy year ahead. KPMG agree, just that the predicted rates of decline and subsequent growth vary between them:
Forecast GDP changes
Deloitte | KPMG | |
2020 | -11.3% | -9.7% |
2021 | +2.6% | +4.2% |
(Sources as per above links)
One thing of note for savings and pensions, is that inflation is universally regarded as being below the Bank of England’s target for some years to come, so that’s good news.
In conclusion, it’s difficult not to see signs of cautious optimism by the end of 2021. It looks like the year could see a return to growth, albeit after another quarter, at least of declining GDP. With a new regime in charge at the White House, the hopes for world trade have taken an upturn, Biden seems to be much less of a protectionist than his predecessor. So, I’m hopeful that we can continue to see growth in our savings and investments, wherever they’re invested.
