The economic recession won't be as bad as initially forecast but will take longer to recover from, the Bank of England has said.
The central bank says it now expects the UK economy to shrink 9.5% in 2020, compared with its earlier forecast of 14%. It will still be the worst annual performance in the past 100 years, however.
In its first official forecast since the start of the pandemic, the Bank of England said the easing of lockdown restrictions in England as early as May had resulted in an "earlier and more rapid" recovery than anticipated.
It said spending on clothes and household items had now returned to pre-pandemic levels, while spending on food and energy remain higher. At the moment, the recovery is being held back by a lack of spending in the leisure industry, which is only just starting to reopen, and business investment.
Looking to the future, the Bank of England said it expects the economy to grow 15% in 2021 and to return to pre-covid levels by the end of 2021. It then forecasts growth of 3.5% in 2022. It's important to bear in mind that these figures are based on the assumption that a second wave of Covid-19 does not take hold in the second half of 2020, and that the Brexit transition period ends with a deal.
However, with the government's Job Retention Scheme set to end in October, the Bank said unemployment is likely to rise to 7.5%, and average earnings are likely to drop for the first time since the financial crisis.