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Coronavirus could see UK GDP fall 13 per cent in 2020: Watchdog

In the model, real GDP could fall 35 percent in the second quarter, but bounce back quickly once the coronavirus restrictions are eased. 

Published: 14th April 2020 07:20 PM  |   Last Updated: 14th April 2020 07:20 PM   |  A+A-

People wear masks as preventive measure against coronavirus.

Representational image (Photo | Shriram BN/EPS)

By AFP

LONDON: Britain's economy could shrink by an unprecedented 13 percent this year in the case of a three-month coronavirus lockdown, according to a scenario published Tuesday by fiscal watchdog the Office for Budget Responsibility.

"The resulting 13 percent fall in annual GDP in 2020 would comfortably exceed any of the annual falls around the end of each world war or in the financial crisis," the OBR said.

In the model, real GDP could fall 35 percent in the second quarter, but bounce back quickly once the coronavirus restrictions are eased. 

Unemployment could also rise by more than two million to hit 10 percent in the second quarter, with the recovery in jobs lagging behind GDP, said the OBR.

"We're up to about 1.4 million people who have claimed Universal Credit (social security) and also other people who have claimed other things like Jobseeker's Allowance or Employment Support Allowance," social welfare minister Theresa Coffey told Sky News on Tuesday.

The model suggested that half of those made unemployed by the crisis could return to work by the end of the year, but that the unemployment rate could still be around 1.5 percent higher than pre-virus levels at the end of 2021.

Finance minister Rishi Sunak told the BBC that the study made "clear this will have a very significant impact on our economy".

"There's hardship ahead," he warned, adding "it's clear we must defeat this virus as quickly as possible".

Death toll rises

Britain announced an initial 3-week lockdown on March 23, but with the death toll soaring, the government has extended the restrictions and there is little chance of them being lifted imminently.

On Monday, Foreign Secretary Dominic Raab, who is deputising for Prime Minister Boris Johnson as he recovers from his own bout of COVID-19, warned the UK would not lift its nationwide lockdown anytime soon. 

The government must decide by Thursday whether to maintain its rules to keep schools and shops shut and order people to stay in their homes to try to stop coronavirus spreading.

The country has recorded 11,329 deaths of people testing positive for the virus, although official data released Tuesday suggested that the true figure could be a lot higher.

The government has already announced huge public spending measures to support businesses and those out of work, leading to a large increase in predicted borrowing. 

The OBR scenario envisages a net borrowing increase of £218 billion in 2020 to 14 percent of GDP, the largest single-year deficit since World War II. 

Public sector net debt could peak at over 100 percent of total economic output during the year, according to the model, ending 2020 at 95 percent.

Measures taken by the government and the Bank of England are "likely to have only a limited effect... as the fall in output is largely the by-product of the impact of the health measures on the supply of, and demand for, goods and services," the OBR said.

It warned that the scenario "should not be taken as our view of the most likely path for the economy", which is highly sensitive to underlying factors.

"It would not require particularly large changes to the highly uncertain assumptions about prospects for individual sectors to alter the estimated fall in GDP significantly and it is quite plausible that the impact could be materially smaller or larger than in our reference scenario," it explained



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