UK economy set to shrink by 8% in 2020 - EY Item Club

The UK economy is set to shrink by 8% this year and could struggle to recover before 2023 from the damage wrought by the coronavirus pandemic, said the latest analysis by EY Item Club.

The consultancy's report, produced between two quarterly updates, shows the deteriorating outlook of the country’s economy after it shrank a record 20.4% in April and is on its way to becoming the worst recession in over three centuries.

Mark Gregory, EY UK’s chief economist, said: “This is an undoubtedly challenging environment for businesses and forecasting is extremely difficult. We’ve made some significant adjustments to our GDP expectations compared to what the data told us just six weeks ago.”

The report also warned that consumer spending could fall 17% in the second quarter of the year and by 8.7% over the whole of 2020 before rebounding in 2021.

EY also highlighted that unemployment resulting from the job cuts triggered by the health crisis would also take a long time to be recouped.

“Many people have lost their jobs despite the government’s supportive measures,” said Howard Archer, the group’s chief economic adviser. “This will inevitably have some limiting effect on the economy’s recovery.”

Total investment was also set for a precipitous fall, of 13.7%, in 2020.

In its latest outlook, the Organisation for Economic Cooperation and Development had already predicted that the UK economy would shrink by more than any other developed country's as businesses struggled to recover from the pandemic.

It forecast a 11.5% contraction in GDP for 2020 rising to -14% in case of a second outbreak materialising.