Coronavirus: UK economy should shrink by record 35% by June

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Britain's independent tax and spending watchdog has warned the coronavirus pandemic could see the UK economy shrink by a record 35% by June.

The Office for Budget Responsibility said that this was based on an assumption that the current lockdown would last for three months.

Under this scenario, unemployment would hit 10%, from its current 3.9% rate.

However, once restrictions were lifted, the OBR said it expects growth to recover quickly with no lasting damage.

The OBR outlined the potential hit to the economy and public finances in a special report on Tuesday.

It said a three-month lockdown followed by three months of partial restrictions would push up Britain's borrowing bill to an estimated £273bn this financial year, or 14% of gross domestic product (GDP).

This would represent the largest deficit as a share of GDP since World War II.

While borrowing is expected to jump, the OBR said the government's unprecedented financial help for workers and businesses would help to limit any long-term damage.

It expects half of the sharp drop in economic growth in the second quarter to be reversed in the three months to September.

While the UK economy is expected to contract by 13% for the year as a whole, the UK is expected to get back to its pre-crisis growth trend by the end of 2020.

The OBR expects a more lasting impact on unemployment, which is estimated to rise by 2.1million to 3.4 million by the end of June.

It said almost all the increase was happening this month, and would push the unemployment rate to 10%, before easing to around 7.3% at the end of the year.

The jobless rate is expected to remain elevated until 2023, when it is expected to drop back to 4%, in line with the OBR's March forecast.

Edited April 15, 2020 by -Dark
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