GDP could still grow by about 5.5 per cent in 2022, says IEA economist
Victoria Hewson writes for CapX
Julian Jessop comments for the Daily Express
“The 0.8 per cent monthly rise in UK GDP in January may predate the Ukraine crisis, but it is still good news. More timely business surveys suggest February was strong too.
“The detail shows the resilience of the market economy when businesses are free to trade again. Output in consumer-facing services grew by 1.7 per cent, led by a rebound in spending in pubs and restaurants as the Omicron scare faded.
“Nonetheless, even without the additional headwinds from Ukraine, it is too soon to sound the all clear. UK GDP growth since February 2020 has been led by health spending, mainly by government. This was a vital investment to get on top of Covid and create the conditions for a sustained recovery in private demand, but the output of consumer-facing services is still 6.8 per cent below its pre-Covid level.
“It is also too soon to write off the economic recovery. The UK economy at least started the year with plenty of positive momentum. In an ‘upside’ scenario, with a quick end to the Ukraine crisis, rapid falls in energy prices and a strong rebound in business investment, GDP could still grow by about 5.5 per cent in 2022.
“However, this would require the government to help the recovery, rather than hinder it. In the long-term this means freeing up markets and supporting private investment and entrepreneurship. In most areas, the state needs to do less, rather than intervene further.
“In the meantime, though, the government may have to provide more cash support for low-income households struggling with their bills, and rethink plans to hike taxes. If necessary, the government should be willing to borrow more, just as it did during the Covid pandemic, and in the first and second world wars.
“Fortunately, the public finances are in better shape than anticipated. Individuals and companies are already paying more tax than expected as a result of higher nominal incomes and prices, and there is no need to add to their burden now. The Chancellor therefore has some extra wiggle room in the Spring Statement – and he should use it.”
Notes to editors
Contact: Emily Carver, Head of Media, 07715 942 731, [email protected]
IEA spokespeople are available for interview and further comment.