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Coronavirus: UK economy could shrink by record 35% as unemployment soars by two million, finance watchdog warns

Coronavirus: UK economy could shrink by record 35% as unemployment soars by two million, finance watchdog warns

The UK economy could be set for a record contraction, the OBR have warned

2 min read

The UK economy is set for a record contraction with as many as two million more people facing unemployment in the wake of the coronavirus shutdown, the government's finance watchdog has warned.

The Office for Budget Responsibility said its "reference scenario" found that the UK's economy could shrink by more than a third between April-June if the nationwide lockdown remains in place for three months.

Experts from the independent watchdog said their model also assumed a further three months of partial restrictions could follow, leaving as many as two million more people - around 10% of the UK workforce - unemployed.

While the group projected the economy would "bounce back quickly" in the following two quarters, the analysis showed the overall impact would be a 13% fall in GDP by the end of financial year in 2021.

It comes after Chancellor Rishi Sunak pledged to support businesses and the public through the crisis with an economic package worth hundreds of billions.

But the report said these measures, alongside a lower GDP, would mean public sector borrowing could rise to as much as £276bn, around 15% of GDP, leaving the UK with its largest single year deficit since the Second World War.

Meanwhile, the group said employment figures would also continue to improve over the later financial quarters, but would not recover at the same rate as GDP.

The report added: "The spread of the coronavirus will substantially raise public sector net borrowing and debt, primarily because of the associated economic disruption. The government’s policy response will also have substantial direct budgetary costs.

"The immediate cost of the government’s actions may be high, but we can be confident that the cost of inaction would ultimately have been much higher."

Responding to the analysis, Chancellor Rishi Sunak said: "The report makes clear that the actions we’ve taken – unprecedented actions – will help to mitigate the impact of the virus on our economy and that if we hadn’t done these things it would mean that things were a lot worse, for example with unemployment."

But Shadow Chancellor Anneliese Dodds said: "Behind these very concerning figures lie many businesses which have gone bust and many people who have lost their jobs.
 
"Labour has been working constructively with Government on its economic support package. It is clear that additional action needs to be taken to increase the take-up of the different measures. We have called for urgent action in relation to the loans scheme in particular, as take-up is worryingly low.

"It is absolutely critical that government now does all it can to minimise the depth and length of the economic impact from necessary anti-Coronavirus measures."

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