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Thu, 9 April 2020

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Coronavirus could plunge British economy into recession worse than 2008 crisis, analysts warn

Coronavirus could plunge British economy into recession worse than 2008 crisis, analysts warn

KPMG warned that the UK economy could be pushed into a deep recession.

4 min read

Britain could be heading for a recession that would dwarf the 2008 financial crisis, according to a stark new economic forecast.

Analysis from accountancy giant KPMG said the UK economy would contract by 2.6 percent this year if the coronavirus pandemic is contained by the summer.

But a more protracted health crisis could see the UK economy shrink by 5.4 percent - a slump worse than the financial crisis which crippled global economies over a decade ago.

The company's latest quarterly outlook comes amid growing pressure on Chancellor Rishi Sunak to do more to shield the self-employed from the economic effects of the Covid-19 outbreak.

Labour is demanding that the Treasury - which last week unveiled a wave of measures to shore up the economy, including an unprecedented vow to underwrite wages for hard-pressed firms - introduces a "temporary basic income" for those in less secure forms of work.

The KPMG analysis predicts that the latest measures from the Chancellor will help to curb the imapct on the UK's unemployment rate, with a "relatively low" figure of 5.6 percent predicted from May.

But that would still represent a jump on the current joblessness rate of 3.9%, which has remained largely unchanged for the past year.

Yael Selfin, chief economist at KPMG UK, said: "Until we know how and when the Covid-19 outbreak will end, the scale of the negative economic impact will be difficult to quantify. 

"However, it is now almost certain that the UK is slipping into its first significant downturn in over a decade."

The firm has modelled a range of scenarios for the UK economy over the next quarter, including one in which public health measures unveiled by governments around the world "stem the rise in the number of cases by summer 2020".

Under that model, GDP in the UK would fall by 2.6 percent this year but then bounce back to 1.7% growth in 2021.

However, KPMG's "downside scenario" sees the pandemic continue until the second half of 2021, with the country's economy shrinking by 5.4% this year and another 1.4% in 2021 - "representing a slightly more severe recession than the downturn experienced in 2008-09".

And Ms Selfin added: "It is likely Covid-19 will result in a massive expansion in government debt and this could threaten to dislodge the government’s original vision to ‘level-up’ the UK economy, long after the pandemic is past — leaving the Chancellor with a big challenge on his hands."

'JOB HALF-DONE'

The analysis comes amid mounting calls for the Treasury to provide reassurance to Britain's five million self-employed people. 

Ministers have already promised to underwrite 80% of wages - up to £2,500 a month - for millions of employees who would otherwise find themselves out of work.

But the Government has been criticised for not extending the job retention scheme to the self-employed.

Writing for The House Live, Shadow Culture Secretary Tracy Brabin said: "While the Government has done right by businesses and employees in their announcement on Friday, it’s sadly a job half-done. 

"It's time now to value freelancers, to put them on an equal footing with employed workers and provide them with genuine financial relief too."

The Labour frontbencher added: "Nothing short of a temporary basic income is going to give this substantial part of the workforce what it needs to get through this crisis. This week, the Chancellor can do the right thing and make that a reality."

Communities Secretary Robert Jenrick told the BBC this weekend that despite the measures unveiled so far by Mr Sunak, ministers would "keep reviewing the situation and see if there are further measures we can take".

But he warned that rolling out the job retention scheme - which analysts have predicted will already come with a multi-billion-pound monthly price tag - to the self-employed will not be simple.

He told the BBC: "The purpose of our employment mechanism is to help continue the connection between employees and their business so once this is over, and it will be over, those individuals can return to their usual work and that link isn’t broken."

Read the most recent article written by Matt Honeycombe-Foster - Coronavirus: UK set for at least three more weeks of lockdown as ministers meet to plot way ahead

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