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Goldman Sachs Sees UK Recovery Outpacing the U.S. This Year

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  • The U.K.'s flash composite purchasing managers' index reading for April surged to 60 from 56.4 in March, its highest level since November 2013.
  • Retail sales also beat expectations in March to climb 5.4% from the previous month, while a GfK survey showed British consumer sentiment this month rising to its highest point since the pandemic.
  • Goldman Sachs has now upped its growth forecast to a "striking" 7.8% for 2021.

Goldman Sachs has upgraded its forecasts for the U.K. economy in 2021, and now sees it outpacing the U.S.

The U.K.'s flash composite purchasing managers' index reading for April surged to 60 from 56.4 in March, its highest level since November 2013 and a far sharper incline than anticipated, as the country embarks on a phased exit from nationwide lockdown measures.

Retail sales also vastly outstripped expectations in March to climb 5.4% from the previous month, while a GfK survey showed British consumer sentiment this month rising to its highest point since the pandemic.

"Moreover, Covid case growth has remained low and the vaccine roll-out has surged ahead, with half of the population vaccinated. We therefore see the government's reopening plans as on track, with phase 3 to start on May 17," Goldman chief European economist Sven Jari Stehn said in a research note Sunday night.

"As a result, we expect very strong growth in the April and May data, and remain comfortable with our 5.5% (not annualized) growth forecast for Q2," Stehn added.

Almost 33.7 million people have now received their first vaccine dose in the U.K., with daily Covid-19 cases falling steadily to 1,712 on Sunday.

Monthly GDP in the U.K. increased 0.4% in February, roughly in line with expectations, but following recent upward revisions to real GDP and last week's strong indicators, Goldman Sachs has now upped its growth forecast to a "striking" 7.8% for the whole of 2021.

In February, the Wall Street titan upped its forecasts for U.S. growth in 2021 to 6.8%, while the International Monetary Fund currently projects 6.4% growth in the U.S. and 5.3% in the U.K.

The U.K. economy shrank by 9.9% in 2020, according to the Office for National Statistics, its largest annual contraction since the Great Frost of 1709 as the country was forced into strict lockdown measures for longer periods than many of its European peers.

U.S. GDP shrank 3.5% in 2020, the largest decline since 1946, when the U.S. demobilized after World War II.

Detachment of mobility from GDP

Stehn's view was supported over the weekend by JPMorgan economist Allan Monks, who noted that a gradual detachment of mobility measures from economic performance bodes well for the U.K.'s economic recovery. This would mean that the country's GDP growth is more likely to remain on course even without a full return to office working and unencumbered travel.

"The linkage between the two has weakened over time, in sectors involving both higher and lower levels of social contact. But the relationship involving workplace mobility and the broader economy, i.e., where social contact is the lowest, is the weakest," Monks said in a research note.

"Together with survey evidence of sharp increases in both household and business expectations for the future, this raises our confidence that a significant GDP rebound is possible without a full normalization in mobility."

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