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Capital Economics: UK on the brink of ‘strong comeback’

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Macroeconomic forecasting consultancy Capital Economics has issued a positive outlook for the UK, highlighting the potential for a period of “strong catch-up growth”.

In its quarterly review of the UK economy, the group says the country could be on the brink of a strong comeback after the challenges of the coming year or two are met.

The consultancy notes UK GDP is around 15 per cent where it would have been if it had grown at pre-recession rates and argues it is “implausible” to believe the vast majority of this shortfall has been lost permanently.

Capital Economics says: “The UK has been remarkably successful in recovering most of the lost ground after past recessions. Admittedly, recessions caused by financial crises tend to cause more damage to an economy’s supply potential.

“But indicators, such as the relatively high rate of labour market participation and R&D spending, suggest that this damage may have been relatively small.”

In its updated forecast, the group predicts the UK economy could grow by an average of about 4 per cent a year over the second half of the decade after underused resources start to become used again.

It adds that the kind of growth experienced will be more favourable than before the crisis, with the manufacturing, energy and construction sectors becoming more prominent and helping to better balance the economy.

It says: “Of course, the long-term outlook is not without its risks. But there will always be clouds on the horizon. When a full-blown recovery finally comes, we believe that it will be worth the wait.”

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