Britain’s economy is forecast to shrink by a record 35% in the April-June period, making coronavirus more devastating to the nation’s finances than the First and Second World War.
The Office for Budget Responsibility said in a projection that the UK’s budget deficit could hit £273 billion in the 2020/21 financial year, five times the OBR’s previous estimate and equivalent to 14% of gross domestic product.
The projection was based on the assumption that the shutdown lasts for three months followed by another three-month period during which restrictions are gradually lifted, the OBR said.
In our scenario, the shock to the economy and the huge Government policy response raise this year’s budget deficit by around £220bn to around 14% of GDP and public debt to around 100% of GDP. #OBRcovidscenario pic.twitter.com/TJBOXgui5w
— Office for Budget Responsibility (@OBR_UK) April 14, 2020
The OBR said in this scenario unemployment would likely rise to 10% of the working population, but will ease off later in the year.
Responding to the report, a Treasury spokesman said: “We’ve already said that coronavirus is going to have a significant impact and that in spite of our unprecedented measures, there will be hardship for people and businesses.
“The report also talks about the measures we’ve taken over the last decade to ensure that the economy is in good shape and how that will help us to recover and bounce back once the immediate threat of the virus has passed.
“They do say that the while the impact will be significant, it will be contained in time and that there will be a rapid bounce back.”
SO:
Q2 = around -35%
Q3 = around +25%
Q4 = around +20%Overall annual decline in GDP in 2020
– -13% – higher than world wars, GFCOnly 1920/21 compares pic.twitter.com/ZkJaBDIEcR
— Faisal Islam (@faisalislam) April 14, 2020
Shadow Chancellor Anneliese Dodds MP called for additional action now to sure up businesses. She said: “It is absolutely critical that government now does all it can to minimise the depth and length of the economic impact from necessary anti-coronavirus measures.”
SNP Westminster leader Ian Blackford MP said the OBR scenarios underlined the need for the UK government to fix “the serious gaps in the support” being offered to millions of people who have lost their jobs or seen their incomes reduced.
He said: “This analysis demonstrates the huge damage coronavirus is doing to our economy – and the urgent need for the UK government to fix the serious gaps in financial support for the millions of people who have lost their jobs or seen their incomes reduced.
“The Chancellor must ensure that businesses have access to cash to stay afloat – and that all households get the support they need. This must include a guaranteed minimum income for everyone and strengthened welfare protections – so no one is left behind.”
He added: “Too many people have been left out of the current schemes – and millions are struggling to pay their bills and support their families when their incomes have been slashed.
“Ensuring the right support is crucial but I would also warn the UK government against any rash decision to lift the lockdown too early. Protecting lives must be the priority. The lockdown must be in place for as long as is necessary to ensure people do not lose their lives needlessly.”