The ‘flash’ purchasing managers’ survey for the UK manufacturing and services sectors indicated that overall activity was close to stabilisation in February after contracting at the fastest rate for eight months in January.
While the improvement in activity eases some concern about the potential size of contraction in the UK economy in Q1, it still appears that the UK is being much more affected by lockdown and restrictions now than it was in Q4 2020. The EY Item Club expects the economy will experience a Q1 contraction – possibly around 4% quarter-on-quarter.
After Q1, the EY Item Club expects the economy to benefit progressively through 2021 from the roll-out of COVID-19 vaccines. Consumers look well-placed to play a key role given the recent high savings ratios, although much will depend on how much unemployment ultimately rises. After an extended period of weakness, business investment is expected to gain momentum over the course of the year as companies grow more confident in the economy.
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