The UK's Economy Is Set To Contract By 11.3% This Year, According To A Forecast From The Government's Finance Watchdog
The UK's economy is set for its worst performance in over 300 years.
The Office for Budget Responsibility has concluded the UK's economy will shrink by over 11% this year as a result of the coronavirus pandemic.
Chancellor Rishi Sunak said the latest analysis of the UK's finances concluded the drop was the largest fall in over 300 years, with economic output not expected to return to pre-crisis levels until the fourth quarter of 2022.
The watchdog said the economy was set to bounce back from next year, with 5.5% growth in 2021, 6.6% in 2022, before falling to 2.3% in 2023.
But the analysis found unemployment was set to rise as a result of the economic impact of the pandemic, with 2.6m people estimated to be out of work in the second quarter of 2021, equating to an unemployment rate of 7.5%.
The OBR said the economic outlook would remain "highly uncertain" given the potential future path of the virus, the successful development and rollout of a vaccine, and the outcome of the Brexit negotiations.
But even under their base scenario, which presumes the widepsread rollout of an effective vaccine in spring of 2021 and the agreement of a free-trade deal with the EU, they forecasted the UK's economy would still be left with "permanent scarring" of around 3%.
Unveiling the spending review, Mr Sunak said: "Even with growth returning, our economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022 - and the economic damage is likely to be lasting. Long-term scarring means, in 2025, the economy will be around 3% smaller than expected in the March Budget."
Meanwhile, the Chancellor said the OBR had predicted borrowing would total £394bn this year, equivalent to 19% of GDP.
He said the borrowing figures were the highest recorded level in "peacetime history" with the finance watchdog forecasting a further £164bn in borrowing next year, before falling to £105bn in 2022/23 and remaining at £100bn per year for the rest of the forecast period.
The figures, he said, would lead to underlying debt rising every year, reaching 97% of GDP in 2025-26.
"High as these costs are, the costs of inaction would have been far higher," he told MPs.
"But this situation is clearly unsustainable over the medium-term. We could only act in the way we have because we came into this crisis with strong public finances. And we have a responsibility, once the economy recovers, to return to a sustainable fiscal position."
Meanwhile, the OBR said the support handed out to households and businesses had "prevented an even more dramatic fall in outpot and attenuated the likely longer-term adverse effects of the pandemic on the economy's supply capacity".
The report added: "The government's furlough scheme has prevented a larger rise in unemployment. Grants, loans, and tax holidays and reliefs to businesses have helped them to hold onto workers, keep up to date with their taxes, and avoid insolvencies."
But the OBR said that unlike previous recessions, the greatest driver of increased borrowing came as a result of the government's policy measures rather than a hit to the economy.
They added: "Moreover, the connection between the public health restrictions and the levels of support offered to workers and businesses underscores the importance of controlling the virus to containing the longer-run cost of the pandemic."