The grim forecast was made by the Office for Budget Responsibility (OBR), which predicted that the economy could shrink by 35 percent in the second quarter, leading to the loss of at least two million jobs. This would have a devastating impact on communities throughout the UK. The Chancellor stressed that the forecast was just “one potential scenario”, but admitted he was “deeply troubled” by it.
He told journalists: “I also, when I see these numbers, am deeply troubled.
“This is going to be hard. Our economy is 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 economic hit from the COVID-19 has been much bigger than the Treasury expected, when they drew up their bailout plans.
These included tax holidays, £350 billion pounds in government guaranteed loans, as well as a commitment to pay 80 percent of employees’ wages, up to a maximum of £2,500 per month.
However, the bailout is costing the Treasury billions more than predicted, because more businesses have shut their doors and furloughed or laid off staff than was hoped.
A three-month lockdown would increase borrowing by £218 billion to £273 billion this financial year, amounting to 14 percent of GDP.
As a result, the government is coming under intense pressure to lift its social distancing restrictions and get people back to work.
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The Chancellor, however, sought to resist such pressure, insisting that it was vital to maintain the curfew.
He said: “It’s not a case of choosing between the economy and public health.
“Common sense tells us that doing so would be self-defeating.”
Mr Sunak said the priority now was to mitigate the impact from the coronavirus pandemic and that the country could bounce back quickly as a result of the government’s emergency interventions.
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In its assessment the OBR forecast agreed that the economy would rebound quickly, but warned that unemployment would take time to fall.
It said the jobless total would rise by 2.1 million to 3.4 million by the end of June, going from the current rate of 3.9 percent to 10 percent, its highest level since 1993.
The OBR predicted that it would take another three years for the unemployment rate to fall below four percent.
Robert Chote, the OBR’s chairman, commented: “The longer the lockdown goes on, the more likely it is that the future potential of the economy is scarred by business failures, by less business investment and by the unemployed finding it harder to get back into the labour market.”
Under the OBR scenario, 2020 would see an overall drop of 13 percent in GDP, which would “comfortably exceed any of the annual falls around the end of each world war or in the financial crisis,” it said.
By comparison, the worst quarterly drop in GDP during the 2008 banking crisis was just two percent.
This comes as the International Monetary Fund (IMF) said it expected the global economy to shrink by three percent this year.
This would make it the “worst recession since the Great Depression” of 1929-39, according to its chief economist Gita Gopinath.
She pointed out that for the first time since the Depression, both advanced, emerging market and developing economies would all be in recession.
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