THE Bank of England has hiked its forecast of UK growth this year from five per cent to 7.25%, and cut its projection of peak unemployment sharply, noting that vaccines were now helping the economy to “recover rapidly”.

UK gross domestic product plunged by 9.8% last year amid the coronavirus crisis, the most precipitous drop for more than 300 years.

The projected rebound this year, which represents a sharp increase from growth of 5% in 2021 forecast by the bank in February, would be the fastest since 1941.

Bank of England governor Andrew Bailey said: “Let’s not get carried away. It takes us back by the end of this year to the level of output that we had essentially at the end of 2019, pre-Covid.”

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And the bank cut its projection of 2022 growth from 7.25% to 5.75%. It maintained its forecast of expansion in 2023 at 1.25%.

Unemployment is now forecast by the bank to peak at slightly less than 5.5% in the third quarter of this year on the International Labour Organisation measure. And it is now forecast to average 5% this year, as opposed to the 6.5% projected by the Bank in February.

The ILO unemployment rate in the December to February period was 4.9%, according to figures published last month by the Office for National Statistics.

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The Bank of England’s Monetary Policy Committee yesterday held UK base rates at a record low of 0.1%.

Howard Archer, chief economic adviser to the EY ITEM Club think tank, said: “At its May meeting, the MPC appeared much more upbeat overall on the UK economy – certainly in the near term. The committee considered that UK GDP likely contracted by around 1.5% quarter-on-quarter in Q1 2021, much less than had been anticipated in its February forecast. Furthermore, GDP is expected to rise ‘sharply’ in Q2 and then increase over the rest of the year in the absence of any new Covid-19 restrictions.”