Goldman Sachs (GS) has broken with consensus to predict a big rebound for the UK economy next year, even as others downgrade their expectations for 2021.
Economists at Goldman on Friday upgraded their forecasts for UK gross domestic product (GDP) growth in 2021 and 2022. The investment bank expects the economy to grow by 7% next year and 6.2% the year after.
Sven Jari Stehn, Goldman Sachs’ chief European economist, admitted the calls were “significantly above consensus” in a note sent to clients.
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The median private sector forecast for GDP growth next year is 5.7% in 2021, according to forecasts compiled by the Treasury.
Goldman’s call also goes against the prevailing tide — in recent weeks forecasts have mostly been cutting their estimates for UK GDP growth next year. The Office for Budget Responsibility (OBR), the UK’s official spending watchdog, and the OECD have both trimmed around three percentage points off forecasts made earlier in the year.
Jari Stehn said he believes the UK is “well placed” to benefit from a COVID-19 vaccine next year given the large quantity it has pre-ordered and fast approval by regulators.
The steep fall in UK GDP this year means the economy also has more headroom to rebound than other nations. Jari Stehn added he is optimistic that Britain will seal a Brexit trade deal with the EU in the coming weeks.
“Although the UK economy will need to cope with a number of structural challenges in coming years, we are therefore optimistic on the UK growth outlook next year,” he wrote.
Earlier this week Goldman’s portfolio strategy team told clients to buy UK equities and the pound, citing analysis from the bank’s economics team.
While Goldman’s forecasts put the bank on the higher end of expectations, it is not the most bullish call in the city. JP Morgan (JPM) and Pantheon Macroeconomics have both predicted GDP growth of 7.5% next year, Treasury data shows.
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