The UK’s biggest bank HSBC has sharply downgraded its forecast for the UK economy, predicting it to shrink by 10.3 per cent this year and only grow six per cent in 2021.
The latest figures are markedly more pessimistic than its previous prediction of a 7.8 per cent contraction in 2020 followed by growth of 6.2 per cent next year.
It is also much more gloomy than the Bank of England, which said the UK economy would return to its pre-coronavirus size by the end of 2021. The BoE said the economy would shrink 9.5 per cent this year and grow nine per cent in 2021.
By contrast, HSBC today said in a report that the UK economy would likely be 4.5 per cent smaller by the end of 2021 than it was at the end of 2019.
The giant UK lender contrasted its new forecasts with some relatively rosy commentary that has recently come from the Bank of England.
The BoE’s chief economist Andy Haldane has been particularly bullish. He wrote in the Daily Mail last week: “Now is the time to see the economic glass as half-full not half-empty.”
He has previously pointed to payments data that showed a relatively rapid rebound in spending as the coronavirus lockdown was eased.
Recent UK economy data ‘worse than expected’
But HSBC senior economist Elizabeth Martins said recent economic data was underwhelming. The UK economy crashed by an historic 20.4 per cent in the second quarter, which “was worse than we had expected,” Martins said.
She said that unlike Haldane, “recent data outturns have made us more pessimistic about the lasting economic impact”.
Martins added: “The UK is far from back to normal.” Official figures from the end of July showed only 5.5 per cent of those who had been furloughed had returned to work, she said. And “a significant number of businesses have simply not reopened”.
However, Martins said there had “clearly been green shoots” since April. The easing of lockdown has increased activity and fiscal incentives like the “eat out to help out” scheme have boosted the economy.
HSBC maintained its previous prediction that unemployment would hit 7.2 per cent by the end of the year, which would likely see around 3m out of work.
It was better than the BoE’s 7.5 per cent prediction, however. HSBC said this reflected a better-than-expected second quarter for employment.