A strong economic recovery following the Covid-19 pandemic is likely in the UK, according to a report commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW).

The Oxford Economics report suggested that because GDP has fallen as part of a planned, partial economic shutdown, in theory, activity and demand should rebound as restrictions lift, particularly given fiscal and monetary support from government and the Bank of England since the crisis began.

The report predicts that the economy should return to growth in the second half of the year if the lockdown continues to be relaxed over the summer.

Overall, GDP could shrink by 14% in Q2, the report predicts. This would be the largest decline since 1921. However, unemployment will likely rise by a comparatively modest 3 percentage points, from 4% at the beginning of 2020 to 7% in Q4, reflecting take-up of the furlough scheme designed to protect jobs.

In total, the deficit is likely to reach £290bn ($364bn) this year, equal to 14% of GDP. This would be the biggest deficit since World War Two, and would exceed the previous record of 10.2% in 2009-10.

ICAEW chief executive Michael Izza said: “While this report sets out clearly the challenges facing the UK economy, particularly a fall in GDP not seen for a century, it does provide some optimism that we will be able to rebound from this short, sharp shock.

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“As lockdown measures are eased, we would like to see a strategy designed to promote a sustainable economic recovery beyond the crisis. The phasing out of government schemes will have to be carefully managed to avoid a wave of redundancies and company failures, and to restore business and consumer confidence.

“Without time, space and help for businesses to recover, 2021 will be an exceptionally difficult year, especially if the problems left behind by COVID-19 are compounded by a disorderly end to the EU transition period.”