OBR optimistically predicts shrinking economy will recover in 2021
Chancellor Rishi Sunak speaking in the House of Commons in Westminster. Photograph: Owen Humphreys/PA Wire - Credit: PA
The UK economy could shrink by 35% in the coming months, according to Britain's fiscal watchdog, but optimistically believes the economy will bounce back in 2021 when the Brexit transition ends.
In its first estimate of the economic toll taken by the coronavirus crisis, the Office for Budget Responsibility (OBR) said unemployment could hit 3.4 million his year, leaving around one in 10 of the working population without a job.
And public sector net borrowing could reach £273 billion in 2020-21, or 14% of gross domestic product (GDP), marking the biggest deficit since the Second World War.
It believes that there will be a 35% drop in GDP between April and June, working on the assumption that the lockdown will only last that period.
But the independent forecaster said, in this case, there will be a sharp bounce back in the economy, with gross domestic product likely to jump 25% in the third quarter and a further 20% in the final three months of 2020.
You may also want to watch:
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.
It takes an optimistic view of the end of the Brexit transition period - still expected to end in December 2020.
Most Read
- 1 This chumocracy is costing our country
- 2 Nigel Farage loses nearly 50,000 followers after Twitter suspends QAnon accounts
- 3 Fifteen ways to fix Britain
- 4 Michel Barnier tells UK to be 'very careful' in Brexit diplomatic status row
- 5 Bob Geldof takes swipe at No 10 saying 'lying is second nature' to them
- 6 Independent SAGE adviser gives scathing assessment of Priti Patel's £800 Covid fines
- 7 Jacob Rees-Mogg says it's 'all the EU's fault' musicians can't tour Europe
- 8 George Osborne hopes for Brexit dividend
- 9 Holyrood in talks with EU to extend Erasmus scheme to Scottish students
- 10 Tory minister admits UK rejected EU's music visa offer in order to 'take back control' of borders
The OBR said: 'The net effect of the coronavirus impact and the policy response is likely to be a sharp (but largely temporary) increase in government borrowing that will leave public sector net debt permanently higher as a share of GDP.
'However, 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).'
'If that happens, the budget deficit would reverse less of its temporary rise as economic activity recovers, leaving the government to confront a larger structural deficit and not just higher debt.'
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.'
But he added: 'The report makes clear that the actions we've taken, unprecedented actions will help to mitigate the impact of the virus on our economy.'
The OBR previously claimed that a no-deal Brexit could result in a £60 billion hit to the UK economy if it leaves without a deal.
Become a Supporter
The New European is proud of its journalism and we hope you are proud of it too. We believe our voice is important - both in representing the pro-EU perspective and also to help rebalance the right wing extremes of much of the UK national press. If you value what we are doing, you can help us by making a contribution to the cost of our journalism.