Bank of England predicts best economy growth since Second World War in 2021

The bank have warned that another wave of coronavirus could change the positive forecast.

The UK economy is set to grow at its fastest pace since the Second World War, the Bank of England has forecast.

In 2021, the bank is predicting gross domestic product (GDP) – a measure of the size of the economy – will rebound from the pandemic by 7.25 per cent - up from a prediction of 5 per cent.

This forecast marks the sharpest growth in the economy since 1941.

The growth follows a huge slump in the economy caused by the pandemic - with output plummeting 9.8 per cent in 2020.

Rapid rollout of the Covid-19 vaccine and the lifting of restrictions is now seeing the economy rebound sharply as consumers spend savings built up over lockdown.

The Bank now sees growth reaching pre-pandemic levels at the end of 2021, having previously said it would not recover until the beginning of 2022.

This forecast follows news of the Bank’s Bank’s Monetary Policy Committee (MPC) voting unanimously to hold interest rates at 0.1%.

Bank governor Andrew Bailey said the brighter outlook was “good news”, but he cautioned against getting “carried away” by the roaring growth figure.

He said: “It takes us back to the level of what we had at the end of 2019, pre-Covid.

“That’s good news… but it still means that two years of output growth have been lost to date.”

Bailey warned, however, of the “downside risks to the economic outlook” from a potential resurgence of Covid-19 and the possibility that new variants may be resistant to the vaccine.

The rebound will also begin to pare back after 2021, as the boost from pent-up consumer demand fades, while there will be some long-term scarring from the pandemic equivalent to around 1.25% of GDP.

Inflation will surge this year to 2.4% in the final three months, largely due to energy prices, but the spike will only be temporary and should return to around 2% in the medium term, according to the Bank.

The report showed forecasts were based on rates rising by the second quarter of 2023, but no hike is expected soon.

Additional reporting by PA.