A view of the City of London on a clear day.

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Goldman Sachs has improved its forecasts for the UK economy in 2021 and now sees them outperform the US

The UK composite PMI (Purchasing Managers’ Index) for April rose from 56.4 in March to 60.0, its highest level since November 2013 and a much stronger increase than expected as the country begins a gradual exit from nationwide lockdowns.

Retail sales also far exceeded expectations in March, up 5.4% from the previous month, while a GfK survey found that UK consumer sentiment rose to its highest level since the pandemic this month.

“In addition, the growth in cases in Covid has remained modest and the introduction of vaccines has taken off with half the vaccinated population. We therefore see the plans to reopen the government as on schedule. Phase 3 is scheduled for May 17th begin, “said Chief European Economist Sven Jari Stehn said in a research report Sunday evening.

“As a result, we expect very strong growth for the April and May data and remain satisfied with our (non-annualized) growth forecast of 5.5% for the second quarter,” added Stehn.

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

The UK’s monthly GDP rose 0.4% in February, which was roughly in line with expectations. Following the recent upward revisions in real GDP and last week’s strong indicators, Goldman Sachs has now raised its growth forecast to an overall “remarkable” 7.8% in 2021.

In February, the Wall Street titan raised its forecasts for US growth in 2021 to 6.8%, while the International Monetary Fund is currently forecasting 6.4% growth in the US and 5.3% in the UK

The UK economy contracted 9.9% in 2020, according to the Bureau of National Statistics. This was the largest annual decline since the Great Freeze of 1709, when the country was forced into strict lockdown measures longer than many of its European counterparts.

U.S. GDP contracted 3.5% in 2020, the biggest drop since 1946 when the U.S. was demobilized after World War II.

Replacement of mobility from GDP

Stehn’s view was endorsed over the weekend by JPMorgan economist Allan Monks, who noted that a gradual detachment of mobility measures from economic output bodes well for the UK’s economic recovery. This would mean the country’s GDP growth is more likely to stay on track even without a full return to office work and carefree travel.

“The link between the two has weakened over time in sectors with higher and lower social contact. However, the relationship between workplace mobility and the economy as a whole, ie where social contact is lowest, is weakest,” said Monks in one Research paper.

“Coupled with survey results showing a sharp rise in expectations of households and businesses for the future, this increases our confidence that a significant recovery in GDP is possible without a full normalization of mobility.”