Monthly economic brief: June 2021

GDP growth outlook

Optimism for the economic outlook continues to improve.

• At a global level, world GDP is estimated to have fallen around 3.5% in 2020 and on aggregate has returned to pre-pandemic activity levels with the OECD forecasting growth of 5.8% in 2021 and 4.4% in 2022.^[22] However the OECD set out that the global economy will remain below pre-pandemic expectations at the end of 2022, and alongside the latest IMF forecasts, highlight that the strength and pace of recovery is expected to vary significantly across countries.^[23]
• At a UK level, in May, the Bank of England^[24] forecast UK GDP to grow 7.25% in 2021, returning to pre-pandemic levels in Q4 2021, while unemployment is expected to peak at 5.5% and inflation to rise temporarily above its 2% target. At the MPC meeting in June, global and domestic activity had been stronger than initially expected, with the Bank revising up their near term expectation of GDP growth in Q2 2021 to 5.5% while inflation is expected to rise temporarily above 3% during the year.
• The latest average of new independent UK forecasts^[25] published by HM Treasury in June reports that UK GDP is expected to grow 6.8% in 2021. Reflecting the general improvement in optimism for the outlook, the average new forecast for 2021 has risen each month since February and is up 0.3 percentage points from the average new forecast in May.

• In January, the Scottish Fiscal Commission^[26] forecast Scotland's GDP to fall 5% over the first quarter of 2021 during lockdown and to grow 1.8% over 2021 before returning to pre-pandemic levels at the start of 2024. As in the UK as a whole, the latest outturn data for Q1 2021 show that economic output fell by less than many independent and official forecasts had expected in the first quarter, with Scotland's GDP falling by 2.1%. The Commission will publish their next set of forecasts on 26^th August.
• Reflecting the stronger outturn data, the Fraser of Allander Institute revised up their GDP forecast for 2021 to 5.9% (up from 3.6% in March) and moderated their 2022 forecast to 3.5% (down from 5.6% in March). Overall, GDP is forecast to return to pre-pandemic levels by July 2022, a quarter earlier than had previously been forecast.^[27]