Coronavirus Lockdown: UK Economy Could Shrink 35% This Quarter, World Facing New Great Depression

Wednesday, April 15, 2020
By Paul Martin

15 Apr 2020

Projections released by the Office for Budget Responsibility (OBR) reveal that the British economy could face an unprecedented downturn should lockdown restrictions remain in place for three months.

The OBR said that the British economy could experience a record 35.1 per cent decline in the quarter to June, should the government’s lockdown measures, which are now all but certain to be extended by another three weeks, last for three months.

The projections also predict an increase of £218 billion in government borrowing in 2020-21, reaching a total of £273 billion, representing 14 per cent of the country’s GDP. The borrowing increase would lead to the largest single-year deficit since the Second World War, according to the report.

Though the office concludes that the GDP will “bounce back quickly” in the third quarter, it still predicts that for the year as a whole the UK will face a 13 per cent fall in GDP, a steeper decline than was experienced during either world war or the financial crisis of 2008.

The UK is expected to reach it’s “pre-crisis level” of growth by the end of the year, however, unemployment outlooks remain dire. Despite efforts by the government to prop up businesses, unemployment is expected to rise by more than 2 million to a total of 3.4 million, reaching 10 per cent in the second quarter.

Unemployment is expected to fall to 7.3 per cent by the end of the year and will not return to pre-crisis levels until 2023, the BBC reports.

The analysis conducted by the Office for Budget Responsibility concluded that the economic fallout in the UK would have been much greater if the government had not enacted the strict lockdown measures to control the coronavirus pandemic.

“The government’s policy response will have substantial direct budgetary costs, but the measures should help limit the long-term damage to the economy and public finances – the costs of inaction would certainly have been higher,” the report said.

“If the measures were not stringent enough to control the disease, then the economic impact from illness would be that much greater,” OBR added.

In response to the OBR report, Chancellor of the Exchequer Rishi Sunak declared that the findings confirm that “our plan is the right plan”

“The single most important thing we can do for the health of our economy is to protect the health of our people. It’s not a case of choosing between the economy and public health, common sense tells us that doing so would be self-defeating,” Sunak said on Tuesday.

“At a time when we are seeing hundreds of people dying every day from this terrible disease, the absolute priority must be to focus all our resources—not just of the state but of businesses and all of you at home as well, in a collective national effort to beat this virus,” he concluded.

The International Monetary Fund (IMF) has also warned that the world is facing the worst economic collapse since the Great Depression. In its projections for the rest of the year, the IMF is predicting that the global economy will retract by 3 per cent, a 6.3 per cent decline since its previous projections in January.

Countries with advanced economies face the worst economic outlook according to the IMF report, with Spain and Italy facing the steepest declines. The report concludes that the United Kingdom will face a decline of 6.5 per cent, while the Eurozone as a whole faces a 7.5 per cent decline.

“This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis,” the IMF wrote in a statement.

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