By Jason Douglas and Paul Hannon

LONDON--The U.K. economy is expected to make up ground lost to the coronavirus pandemic by the middle of next year, as a rapid vaccination program fuels economic recovery.

Forecasts from the Office of Budget Responsibility, the U.K.'s fiscal watchdog, show the economy is expected to reach its pre-pandemic size by mid 2022, Treasury chief Rishi Sunak said Wednesday. That is six months sooner than the OBR forecast in November.

That forecast reflects expectations the U.K. economy will recover quickly later this year as a rapid vaccine rollout allows the government to row back restrictions on daily life and the economy.

Britain has so far administered at least one dose of vaccine to more than 30% of its population, and plans to offer vaccination to its entire adult population by the end of July. The U.S. has so far vaccinated around one-fifth of its citizens. The European Union has given shots to 7.5% of its population.

Still, the economy is expected to shrink in the first months of the year after the government imposed a new lockdown in January to stem the spread of a highly-transmissible new variant of the virus first detected in Britain in November. The variant has since spread around the world.

Mr. Sunak said the scars of the pandemic will linger for years, as he laid out his latest tax and spending plans to law makers Wednesday. The OBR expects the U.K. economy will be around 3% smaller in five years time than it would have been had the pandemic never arrived.

"The damage coronavirus has done to our economy has been acute," Mr. Sunak said. He added that "once we are on the way to recovery, we will need to begin fixing the public finances."

Write to Jason Douglas at jason.douglas@wsj.com and Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

March 03, 2021 08:15 ET (13:15 GMT)

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