Strong GDP growth of 7.2% in 2021 and 5.5% in 2022 is projected as a large share of the population is vaccinated and restrictions to economic activity are progressively eased. Growth is driven by a rebound of consumption, notably of services. GDP is expected to return to its pre-pandemic level in early 2022. However, increased border costs following the exit from the EU Single Market will continue to weigh on foreign trade. Unemployment is expected to peak at the end of 2021 as the Coronavirus Job Retention Scheme is withdrawn. Inflation is set to increase due to past increases in commodity prices and strong GDP growth, but should remain below the 2% inflation target.
Fiscal and monetary policies should stay supportive until the recovery firmly takes hold, facilitating structural change as support to existing firms and jobs is scaled down. Public investment should address long-term challenges, notably reducing greenhouse gas emissions and boosting digital infrastructure. Extending higher levels of cash support beyond current plans and continuing to boost training programmes can help affected households. Keeping up the pace of vaccinations and responding to emerging virus mutations are key challenges going forward.