UK economy may shrink by 35%, lose 2m jobs – OBR

The UK’s Office for Budget Responsibility (OBR) said on Tuesday the British economy could shrink by 35% in the April to June period and unemployment could rise by more than two million to 10% amid the coronavirus shutdown. 

The OBR said the UK’s budget deficit could hit £273 billion in the 2020-21 tax year, five times its previous estimate and equivalent to 14% of UK gross domestic product — the biggest since World War Two.

In the “key assumptions and results” in its coronavirus analysis, the OBR said: “We do not attempt to predict how long the economic lockdown will last – that is a matter for the Government, informed by medical advice. 

“But, to illustrate some of the potential fiscal effects, we assume a three-month lockdown due to public health restrictions followed by another three-month period when they are partially lifted. 

“For now, we assume no lasting economic hit …

“Real GDP falls 35 per cent in the second quarter, but bounces back quickly. 

“Unemployment rises by more than 2 million to 10 per cent in the second quarter, but then declines more slowly than GDP recovers. 

“Policy measures support households and companies’ finances through the shock …

“Public sector net borrowing increases by £218 billion in 2020-21 relative to our March Budget forecast (to reach £273 billion or 14 per cent of GDP), before falling back close to forecast in the medium term. That would be the largest single-year deficit since the Second World War …

“The sharp rise in borrowing this year largely reflects the impact of economic disruption on receipts (with smaller effects from policy measures like the business rates holidays) and policy measures that add to public spending (with smaller effects from higher unemployment) …

“Public sector net debt rises sharply in 2020-21 thanks to lower GDP, higher borrowing and the accounting consequences of the Bank of England’s policy measures. 

“It surpasses 100 per cent of GDP during the year, but ends it at 95 per cent (versus 77 per cent in the Budget forecast) as the economy recovers. It remains 10 per cent of GDP above the Budget forecast in 2024-25.”

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