The UK economy recovered from the COVID-19 shock thanks to emergency support measures protecting jobs and incomes and a rapid vaccine rollout, but is slowing amid persisting supply shortages and rising inﬂation. Fiscal policy has to balance gradual tightening with providing well-targeted temporary support to households who are vulnerable to rising costs of living, supporting growth and addressing signiﬁcant investment needs. Accelerating progress towards net zero is fundamental to enhance energy security. The United Kingdom is among world leaders in reducing domestic greenhouse gas emissions, has a strong institutional framework and a broad political consensus supporting the target to reduce net emissions to zero by 2050.
GDP is projected to increase by 3.6% in 2022, before stagnating in 2023. Inflation will keep rising and peak at over 10% at the end of 2022 due to continuing labour and supply shortages and high energy prices, before gradually declining to 4.7% by the end of 2023. Private consumption is expected to slow as rising prices erode households’ income. Public investment will weaken in 2022 as supply bottlenecks hamper the implementation of planned investment, but is set to rise again in 2023 as these effects subside. A tight labour market will help to keep unemployment low.
Vulnerable social groups have been particularly affected by the pandemic and poverty is set to increase as jobs are lost and self-employed see incomes dwindle, accentuating regional differences. The COVID-19 crisis has emphasized the need to re-train and up-skill the population, secure access to affordable housing by reducing bottlenecks to supply and to revive investment.
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2021 Structural Reform Priorities