Impact on output

UK economy to shrink by 5.4% if virus still active next year

Wireline industry

Shrinking: economy a knife-edge

Britain’s economy could shrink by 5.4% this year if the coronavirus persists into the second half of 2021, according to new data.

Amid continuing uncertainty around the longevity and depth of the virus, KPMG sees the UK economy contracting by 2.6% in 2020.

But a protracted outbreak could result in a more severe impact than the downturn experienced in 2008-09, it says. The economy is expected to recover by the second half of 2021 at the latest under both scenarios.

KPMG’s main scenario assumes the public health measures put in place around the world stem the rise in the number of cases by the summer. In this case, it is expected that the economy remains flat in the second half of the year with a strong recovery in the first half of 2021, as uncertainties around the pandemic dispel.

This would see UK GDP fall by 2.6% this year, then grow by 1.7% in 2021. However, if the pandemic persists until the second half of next year, GDP could contract by 5.4% this year and by another 1.4% in 2021.

Other forecasters predict falls in output by as much as 15% to 20%.

With so much uncertainty about how COVID-19 will develop in the weeks and months ahead, KPMG’s latest forecasts are based on a range of scenarios. However, even in its main one, the effects of the pandemic on global economic growth, consumer spending and business investment in particular, will still be highly significant.

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