Britain is set for a long and hard recovery according to accounting giant Ernst & Young (EY).
The country’s third biggest accountants has warned GDP won’t get back to 2019 levels until the end of 2024.
And its latest forecast suggests the economy will contract by 11.5 per cent this year – down from the 8 per cent it predicted in June and from 6.8 per cent predicted in April.
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It also forecasts that unemployment will rise to around 9 per cent in late-2020 – from less than 4 per cent before May.
It comes after the Office for National Statistics said retails sales were close to pre-lockdown levels last month, helped by food and online sales. Clothes sales continued to struggle though.
The EY figures, from its ITEM Club Summer Forecast show dashes hopes of a V-shaped recovery as Covid-19 continues to dictate economic activity.
The downgrades to the 2020 forecast are driven by weaker-than-expected growth of just 1.8 per cent in May, with the services sector particularly hard hit.
The ITEM – Independent Treasury Economic Model – Club is the only non-government economic forecasting group to use the Treasury’s model of the 海角视频 economy.
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Howard Archer, chief economic advisor to the EY ITEM Club, said: “Even though lockdown restrictions are easing, consumer caution has been much more pronounced than expected.
“We believe that consumer confidence is one of three key factors likely to weigh on the 海角视频 economy over the rest of the year, alongside the impact of rising unemployment and low levels of business investment.
“The 海角视频 economy may be past its low point but it is looking increasingly likely that the climb back is going to be a lot longer than expected.
“May’s growth undershot even the lowest forecasts.
"By the middle of this year, the economy was a fifth smaller than it was at the start.
"Such a fall creates more room for rapid growth later, but it will be from a much lower base.”
Unemployment, job insecurity and concerns about the virus will also lead to continuing subdued levels of consumer spending – down 11.6 per cent this year, before heading up 6.6 per cent in 2021.
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Howard Archer said: “The labour market’s performance is key to the economy’s prospects over both the short term and further out.
“Job losses and poor real wage growth are expected to hold back consumer spending, although the Chancellor’s instinct to focus on jobs in his Summer Statement should provide some support.
“It is possible that the Chancellor will look to provide further help for the labour market in this autumn’s budget.”
EY said business investment could fall 22.3 this year, only rising 1.3 per cent in 2021, while exports will fall by 23.9 per cent in 2020.
Simon O’Neill, managing partner at EY in the Midlands, said: “Government measures have provided significant short-term support, but many businesses are waiting for more certainty over the economic outlook before making longer term investment decisions.
“The government has set out a vision around infrastructure, skills and innovation but the detail isn’t yet available.
“With lower demand and margins under pressure because of the need to spend on modifying workplaces, products and consumer experiences so that they’re Covid-safe, there’s a risk that the current uncertainty could lead to a fall in long-term investment.
“While short-term support measures announced so far have been unprecedented, more direct support is likely to be needed in the future.
“Policies such as VAT cuts are welcome, but they aren’t a complete solution, as they don’t resolve the concerns consumers may have about going to restaurants and bars in the first place.”
The EY Summer Forecast believes Government investment will rise 4.3 per cent this year – and 13.5 per cent in 2021 – with public spending up 2.5 per cent.
The budget deficit will hit £335 billion for 2020-21 – 16.9 per cent of GDP and six times higher than the £54.8 billion forecast by the Office for Budget Responsibility at March’s Budget.
The EY ITEM Club also expects a further £100 billion of Bank of England asset purchases to be announced in the autumn (taking total purchases to approximately £845 billion) –although cutting interest rates below 0.1 per cent are unlikely, it said.
Howard Archer said: “The economic outlook remains highly uncertain, with significant revisions to forecasts and official data becoming the norm, but the short-term outlook is certainly gloomier than it was.
“The Treasury and Bank’s fiscal and monetary stimulus has helped, and there should be a fair degree of pent-up demand from consumers, aided by low inflation in the near-term.
“Global economic activity should also be stronger later in the year as economies’ recoveries kick into gear.
“That said, the labour market will take time to recover from 2020’s job losses. This will have a dampening effect on consumer spending.”