UK economic boom or inflation balloon?

Upbeat data about the UK economic bounce back keeps making headlines. Meanwhile, the predictions for 2021 UK economic growth vary from 5.7% (NIESR) to 6.8% (EY ITEM Club) and 7.25% (BoE). Which one will it be? Are we about to witness the UK economic boom or is it just an inflation balloon?

Strong employment figures

Evidence supporting the idea of rapid growth came from the quarterly CIPD/Adecco survey. It shows a sharp rise in the number of companies (64%) across the sectors hiring or expecting to hire extra staff over the next few months. At the same time, as companies are increasingly concerned about shortages of both people and components (from Flakes to microchips), the fears of inflation rise.

Temporary inflation

The economy may be returning to its pre-Covid level. However, it has more debt has lost two years’ growth. On Monday, BoE warned not to confuse temporary high growth and temporary inflation rates with an economic boom.
However, suppose Threadneedle Street’s forecast of 7.25% GDP growth proves correct, and inflation becomes established. In that case, extra cost arising from pent-up demand and commodity price will be passed to consumers.

Lower insolvency figures

Meanwhile, monthly corporate and personal insolvency figures fell again. Corporate insolvencies were down by 7.2% to 925 in April 2021 compared to March’s figure of 997. The downward trend has been driven by a drop in Compulsory Liquidations and Creditors’ Voluntary Liquidations. With the state support measures due to be withdrawn in the next few months, company directors are urged to make the most of the time they have left, and work out how they will manage without the Government support.

If you believe your business is in financial difficulty, please don’t put it off. If you need help with understanding your options or advice on your next steps, contact our team today on 0800 118 2948.

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