East firms urged to invest in kit for predicted strong recovery

Workers at Spectra's plastic bottle making factory at Halesworth (pre-pandemic)

Purchasing new machinery and upgrading factories will be vital in the East according to EY's Stuart Wilkinson - Credit: Spectra Packaging

East of England businesses need to invest in the future as signs suggest the UK economic recovery will be stronger than previously thought, financial experts have said.

Stuart Wilkinson, office managing partner at accountancy giant Ernst & Young (EY) in the East of England, said with UK growth prospects significantly brighter in 2021, firms should be looking ahead.

Economic forecasting group EY ITEM Club now expects the UK’s Gross Domestic Product (GDP) to grow by 6.8% in 2021 — after revising it up from 5% in January.

In its latest spring forecast, it predicted a solid recovery from the second quarter of 2021 as pandemic restrictions are eased and the UK vaccination programme is rolled out. It believes that the UK economy will regain its pre-pandemic peak in the second quarter of 2022.

The figures reflect a resilient performance during the fourth quarter of 2020 and first quarter of 2021 despite the effects of lockdown.

The EY ITEM Club now believes GDP contracted by just over 1% quarter-on-quarter in the first quarter of 2021, rather than its previous forecast in January of a 3% to 4% contraction.

Mr Wilkinson said measures announced in chancellor Rishi Sunak’s budget on March 3, 2021, had helped but acknowledged that disruption and uncertainty had contributed to “relatively weak” levels of UK business investment in recent year — meaning there was “some catching up to do”.

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“With two years of decent growth forecast and measures announced in the chancellor’s budget to support capital investment, businesses can start to plan ahead with more confidence and invest in the future,” he said. 

“Many companies may now need to think about replacing or upgrading plans and processes which have become outdated while business priorities and attention have been elsewhere.”

The EY report also showed that the labour market had been helped by the furlough scheme as it revised down its predicted peak in the unemployment rate to 5.8% — down from the 7% it predicted in its January assessment of the economy.

It now expects the jobless rate to fall as flow as 4.5% by the end of 2022. The furlough scheme has supported UK employment throughout the pandemic and has been a key part of the economy’s resilience, it said. 

“Lower peak unemployment is good news for both society and the UK’s longer-term economic prospects, said Mr Wilkinson. 

“It means the economy is less likely to lose significant skills and capacity and should have more scope to bounce back quickly.

“That said, the experience in the employment market has not been uniform and younger workers have been among those most affected by job losses or reduced employment opportunities. As the economy recovers, it’s vital that businesses step up by providing opportunities to support younger workers back into employment and invest in the skills and training that many have missed out on over the last year.”