Britain’s economy could shrink by 35% and unemployment rise by more than 2 million people due to the coronavirus crisis, the government’s independent economics forecaster has warned.
In a stark assessment of the economic fallout from Covid-19 as lockdown measures bring the country to a standstill, the Office for Budget Responsibility said that gross domestic product (GDP) could plunge by more than a third in the second quarter of the year and 13% for 2020 as a whole.
Sounding the alarm that the immediate hit to living standards could be worse than the initial shock of the 2008 financial crisis, it said joblessness could hit 10% by the end of June and government borrowing this year would increase at the fastest pace since the second world war.
In a gloomy report published after the foreign secretary, Dominic Raab, warned the UK could remain in lockdown for at least another month, 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.”
In a grim assessment that depends heavily on how long ministers decide to keep the lockdown measures in place, the OBR scenario assumed that tight controls would be maintained for three months, followed by a further three months when they are only partially lifted.
The watchdog said it was not attempting to predict what ministers would ultimately decide. Warning there was a high degree of uncertainty, it said the hit to jobs and growth could be plausibly greater or smaller.
According to the assessment, borrowing this year would almost quintuple to reach £273bn, or around 14% of GDP, as the government steps in with financial support and as the economy crashes. Although causing Britain’s biggest peacetime budget deficit, it said the blow from Covid-19 would be much greater for jobs and growth without the government interventions.
“The immediate cost of the government’s actions may be high, but we can be confident that the cost of inaction would ultimately have been much higher,” the OBR said.