Resolution Foundation point to a “pandemic recovery windfall” but warn of inflation

The leading think tank, the Resolution Foundation, has suggested that the UK is set for a significant upgrade in its economic growth forecast next week.

In new research published this morning, the Foundation predicts that the data revisions will involve the biggest ever upgrade to a current year GDP forecast in nearly 40 years of fiscal projections. The revisions are expected as a result of a smaller-than-forecast pandemic hit, and a faster-than-expected pandemic recovery.

Following the largest contraction of economic growth for over a century in 2020, the UK economy is now set to grow by 7.5% in 2021, itself the fastest peace-time annual growth in nearly a hundred years.

It has been suggested that this accelerating growth will reduce annual government borrowing by £25 billion compared to previous estimates.

However, ahead of the Chancellor’s Budget and Spending Review next Wednesday, the Resolution Foundation has warned of the problems now being created by inflation.

With the consumer price index expected to surpass 4% this winter, the Foundation suggest that rising prices could reduce household incomes by as much as £1,000 next year.

Inflationary pressures are also thought likely to lead to an increase in interest rates which will then increase the annual cost of servicing the now considerably increased national debt.

James Smith, Research Director at the Resolution Foundation, said: “The backdrop to the Budget will be a strong recovery from the pandemic that risks being derailed by rising inflation and economic disruption that will squeeze both the Chancellor’s borrowing windfall and family budgets”.