Coronavirus: UK economy predicted to plummet off cliff

UK’s Office for Budget Responsibility predicts unemployment will surge by more than two million, GDP will shrink by 35 per cent.

Chancellor of the Exchequer Rishi Sunak speaks during a remote press conference. Picture: AFP.

Britain’s Office for Budget Responsibility has issued dire predictions that the United Kingdom economy is set to plummet off a cliff edge, with GDP potentially shrinking by 35 per cent between April and June, with unemployment surging by more than two million.

Chancellor Rishi Sunak said he was “troubled’’ by the OBR figures, saying the public would feel the impact of the coronavirus crisis but he was hopeful that the government measures would make a difference.

Mr Sunak said he wants the economy to bounce back “quickly and strongly’’ but admitted life would be difficult in the short term.

Mr Sunak’s warnings come as health officials say the curve of the coronavirus pandemic has levelled but that deaths would not tail off for some weeks.

On Tuesday 778 people died of coronavirus, bringing the total number of confirmed deaths in UK hospitals to 12,107.

In the daily government press conference, Mr Sunak said: ”This is going to be hard, our economy’s going to take a significant hit and as I’ve said before that’s not an abstract thing, people are going to feel that in their jobs and in their household incomes.

“The measures we’ve put in place can significantly mitigate that impact, in particular the jobs retention scheme, the furloughing scheme we’ve put in place aims to do exactly that, ensure that fewer people are unemployed but remain attached to their company through the furlough scheme.

“Yes it will be difficult in the short term. I’m happy to be honest about that with people. I think the measures we’ve put in place will help and then as we get through this it will mean that we can recover quickly and strongly and get our lives and economy back to normal.”

The OBR calculated that government borrowings for 2020-21 could climb by £218bn to £273bn, or 14% of GDP as the cost of the government’s economic plans to keep the country afloat. As well there will be a significant fall in tax receipts. If the economic modelling eventuates, it will be the largest single year deficit since World War II.

OBR analysed the financial impact of a three-month lockdown followed by a three-month period when restrictions are partially lifted.

The OBR anticipates that GDP could bounce back sharply at the3 end of the year but that employment would take much longer to recover, and unemployment would rise from 3.9 per cent to 10 per cent.