Global action call
UK economy could suffer 35% short term slump
Industry set for a fall
Co-ordinated global action will be needed to rebuild confidence, according to Rain Newton-Smith, CBI chief economist, following an alarming prediction that the UK economy could shrink by 35% by June.
The Office for Budget Responsibility (OBR) said that its forecast is based on an assumption that the current lockdown will last for three months.
Separately, the International Monetary Fund warned the virus would push the UK into its deepest slump for a century.
The IMF expects the UK economy will shrink by 6.5% in 2020, while the global economy will contract by 3%.
Chancellor Rishi Sunak acknowledged there were “serious implications for our economy in common with other countries.”
Speaking at his daily briefing, he said: “These are tough times and there will be more to come. As I have said before we cannot protect every business and every household.”
He said Britain came into the crisis with a sound economy and the OBR expects the slump to be temporary.
Rishi Sunak: ‘we can’t protect every business’
Commenting on the two forecasts, Ms Newton-Smith said: “This makes for bleak reading and stresses the need for the right policies to support our economy through this crisis. The need for coordinated global action to rebuild confidence has rarely been greater.
“The Government will also need to work with businesses and many parts of civil society here at home, to create a plan to revive the economy once the lockdown is lifted.”
The IMF said the pandemic had plunged the world into a “crisis like no other”.
The OBR’s estimates – which focus on the virus’s impact on the UK economy and public finances – is more alarming, although it says that once restrictions are lifted its expects no lasting damage to growth.
It says a three-month lockdown followed by three months of partial restrictions would push up the UK’s borrowing bill to an estimated £273 billion this financial year, or 14% of gross domestic product (GDP).
This would represent the largest deficit as a share of GDP since World War Two.
However, 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 12.8% for the year as a whole, the UK is expected to get back to its pre-crisis growth trend by the end of 2020.
Unemployment could rise to 3.4 million by the end of June, from a rate 3.9% to 10%, before easing to around 7.3% at the end of the year. It could take four years for this rate to halve.