3:02 pm, April 14, 2020
The coronavirus crisis could cause the UK economy to shrink 35 per cent between April and June – while unemployment could rise by more than two million.
In its first estimate of the toll taken by the crisis on the economy, the Office for Budget Responsibility (OBR) has also said unemployment may hit 3.4m.
That would leave around one in 10 of the working population jobless.
The OBR’s report, which it stressed is a scenario-based analysis and not a forecast, lays bare the scale of the challenge to Chancellor Rishi Sunak and the impact on the public purse.
The OBR said: ‘The longer the period of economic disruption lasts, the more likely it is that the economy’s future potential output will be ‘scarred’ (thanks to business failures, cancelled investments and the unemployed becoming disconnected from the labour market).’
£273bn
Figure public sector net borrowing could reach
It said public sector net borrowing could reach £273bn in 2020-21, or 14 per cent of GDP, marking the biggest deficit since the Second World War.
On unemployment, the OBR predicts that the steep rise of 2.1m added to the 1.3m already out of work, could happen largely in the first month of the lockdown, but it predicts it should unwind at a slower pace than the GDP bounce back.
With an unemployment rate of 10 per cent predicted in the gloomy scenario, this would be at a level not seen since the early 1990s.
The OBR has based the grim outlook on a scenario where the lockdown lasts three months followed by a partial lifting for three months.
But the forecaster said, in this case, there will be a sharp bounce back in the economy, with gross domestic product likely to jump 25 per cent in the third quarter and a further 20 per cent in the final three months of 2020.
Responding to the figures in the OBR report, a Treasury spokesperson said the government is working on the assumption that coronavirus will have a ‘very significant hit’ on the economy.
Chancellor Rishi Sunak told BBC News: ‘It’s clear this will have a very significant impact on our economy (in) common with economies around the world and it’s important that we’re honest about that.
‘The report makes clear that the actions we’ve taken, unprecedented actions will help to mitigate the impact of the virus on our economy.’
Addressing the report later at the daily Downing Street press conference he said that had the government not taken the actions it had, ‘the situation would be much worse’.
‘These are tough times and there will be more to come,’ he said. ‘As I have said before, we cannot protect every business and every household.
‘But we came into this crisis with a fundamentally sound economy, powered by the hard work and ingenuity of the British people and British businesses.
‘So while those economic impacts are significant, the OBR also expects them to be temporary, with a bounceback in growth.’
Source: PA Media
