According to the Bank of England, the UK economy is set to experience a period of growth, faster than has been seen since the Second World War. This forecast sits on the back of COVID-19 restrictions being lifted as the country begins its long trek back to what everybody expects to be the “new normal.”
The pandemic is responsible for the economy contracting by 9.9%. It is the biggest drop in 300 years. The new growth forecast for this year, exciting though it may sound, is predicted at 7.25%. If it materialises, it won’t restore the economy to where it was before the lockdown, but it will return it to the position it was in back in 2019.
As Andrew Bailey, the Governor of the BoE put it, the recovery, strong though it may be, is more of a bounce-back than a boom.
Good News on the Job Loss Front
At one point in time, the UK unemployment rate was forecast to drop to 7.75%. However, predictions are that it will peak later in the year at 5.5% – a significant improvement. Much is owed to the extension of the furlough scheme.
Lockdown Savings to Fund Consumer Spending
In effect, the 2.25% reduction in the unemployment forecast translates into 700,000 jobs. If this is realised, it easily outstrips the BoE’s best, optimistic predictions. They are hoping that as the COVID-19 vaccination rollout progresses, people will start drawing on their lockdown savings and begin spending – a necessary component of economic growth.
Estimates are that as people tightened their belts during the lockdown, households managed to save over £150 billion. A report in The Times puts this figure even higher at £192 billion. It is due in part to high earners, who were able to cut their travel and associated costs by working from home.
The BoE’s economic growth forecast assumes that approximately 10% of these savings will now be released and that they will help to boost the economic recovery process.
However, no one is looking at the situation through rose-coloured spectacles. The fact of the matter is that the outlook is still somewhat uncertain. As a result, somewhere around 50% of savers intend to sit back and keep an eye on how the pandemic recovery progresses and, in the meantime, they will keep their money where it is.
Keeping Inflation at Bay
Keeping inflation at bay is, of course, crucial. Currently, it stands at 0.7% per annum, as measured by the CPI (Consumer Price Index). The BoE is sticking to its guns by holding interest rates steady at 0.1% – an all-time low.
So far, businesses are holding the line. A few are freezing pay rises, but others are restricting increases to between 1.5% and 2%.
The problem is that with recent increases in commodity and the increase in Chinese factory gate prices, these, together with all-time low-interest rates, are driving fears of sharp rises in goods and services.
Naturally, these concerns worry savers who fear losing value on individual savings to inflation. Interest rates will, of course, respond, but that is the very nature of inflation – continually rising costs and wages spiralling upwards. Interest on ordinary savings accounts cannot keep pace in the long term.
Many savers are employed in the UK’s SMEs, and the government has turned its attention towards supporting these enterprises.
New Government Support Scheme for SMEs Opens for Registrations
The heart of the UK economic engine revolves around the country’s SMEs and the contributions their owners, their employees, and their outputs make. Acknowledging their importance, the government has paved the way by enabling small businesses to register their interest in supporting the “Help to Grow” initiative which is being launched to help SMEs prosper in a post-pandemic UK.
The Help to Grow Initiative
As a component of the “Plan for Jobs” campaign advertised in July of last year, the “Help to Grow” scheme launches in June with a view to helping SMEs to realise their growth targets.
SME owners and managers can now register for a 12-week program which is 90% subsidised by the government, and in which leading business schools in the UK will advise program students on ways to:
- Improve customer relations with a view to increasing sales
- Optimise the opportunity to make online sales
- Digitally improve their accounting and finance systems
MTD – Making Tax Digital
This last component would be particularly useful for SMEs preparing towards digitising their tax communications with HMRC for both income tax self-assessment and corporation tax. Access will be available through an online platform, and qualifying businesses will be able to take advantage of a 50% discount on the cost of the software.
The scheme will be available for SMEs that have been operating for over 12 months and that employ between five and 249 employees. Readers wishing to register interest should visit https://helptogrow.campaign.gov.uk/.