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| Coronavirus: UK economy should shrink by record 35% by June | |
| (30 minutes later) | |
| Britain's independent tax and spending watchdog has warned the coronavirus pandemic could see the UK economy shrink by a record 35% by June. | |
| The Office for Budget Responsibility said that this was based on an assumption that the current lockdown would last for three months. | The Office for Budget Responsibility said that this was based on an assumption that the current lockdown would last for three months. |
| Under this scenario, unemployment would hit 10%, from its current 3.9% rate. | Under this scenario, unemployment would hit 10%, from its current 3.9% rate. |
| However, once restrictions were lifted, the OBR said it expects growth to recover quickly with no lasting damage. | However, once restrictions were lifted, the OBR said it expects growth to recover quickly with no lasting damage. |
| The OBR outlined the potential hit to the economy and public finances in a special report on Tuesday. | The OBR outlined the potential hit to the economy and public finances in a special report on Tuesday. |
| It said a three-month lockdown followed by three months of partial restrictions would push up Britain's borrowing bill to an estimated £273bn this financial year, or 14% of gross domestic product (GDP). | It said a three-month lockdown followed by three months of partial restrictions would push up Britain's borrowing bill to an estimated £273bn this financial year, or 14% of gross domestic product (GDP). |
| This would represent the largest deficit as a share of GDP since World War II. | This would represent the largest deficit as a share of GDP since World War II. |
| While borrowing is expected to jump, the OBR said the government's unprecedented financial help for workers and businesses would help to limit any long-term damage. | While borrowing is expected to jump, the OBR said the government's unprecedented financial help for workers and businesses would help to limit any long-term damage. |
| It expects half of the sharp drop in economic growth in the second quarter to be reversed in the three months to September. | It expects half of the sharp drop in economic growth in the second quarter to be reversed in the three months to September. |
| While the UK economy is expected to contract by 13% for the year as a whole, the UK is expected to get back to its pre-crisis growth trend by the end of 2020. | While the UK economy is expected to contract by 13% for the year as a whole, the UK is expected to get back to its pre-crisis growth trend by the end of 2020. |
| The OBR expects a more lasting impact on unemployment, which is estimated to rise by 2.1million to 3.4 million by the end of June. | |
| It said almost all the increase was happening this month, and would push the unemployment rate to 10%, before easing to around 7.3% at the end of the year. | |
| The jobless rate is expected to remain elevated until 2023, when it is expected to drop back to 4%, in line with the OBR's March forecast. | |
| Lasting impact on public finances | |
| The OBR expects UK debt to remain elevated for years to come, with extra borrowing expected to push Britain's debt share to above 100% of GDP this financial year. | |
| While this will drop sharply as the UK economy recovers, public debt is expected to remain at 84.9% of GDP in four years time, much higher than the 75.3% forecast in the March budget. | |
| However, the OBR said extra spending by the Treasury to support the economy was crucial to limit the economic damage. | |
| "The government's policy response will have substantial direct budgetary costs, but the measures should help limit the long-term damage to the economy and public finances - the costs of inaction would certainly have been higher." | |
| It added that while the lockdown was the main constraint on economic activity, relaxing these measures too soon would cause greater damage. | |
| "The reason why most of the short-term economic impact comes from these measures is that they are successful in limiting the spread of the disease. | |
| "If the measures were not stringent enough to control the disease, then the economic impact from illness would be that much greater." |