OBR predicts UK’s GDP to fall 35%

The UK’s GDP is predicted to fall 35% in the year’s second quarter but expected to “bounce back quickly”, according to new data published by the Office for Budget Responsibility (OBR).

The OBR also suggested that unemployment would rise by more than 2 million to 10% over the same period, and then decline more slowly than GDP recovers.

The OBR stated it was not attempting to predict how long the economic lockdown will last – and that this was aa matter for the Government informed by medical advice – but to illustrate some of the potential fiscal effects, it had assumed a three-month lockdown due to public health restrictions followed by another three-month period when they are partially lifted.

The projections also included public sector net borrowing to increase by £218bn in 2020-21, relative to the March Budget forecast – which was to reach £273bn or 14% of GDP – before falling back close to forecast in the medium term. That would be the largest single-year deficit since the Second World War, the OBR added.

Responding to the data, Labour’s Shadow Chancellor, Anneliese Dodds, commented: “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.”

President of provider of trade finance provider Stenn Group, Dr. Kerstin Braun, added: "The OBR's estimate of a 35% reduction in GDP from April to June is certainly likely, and demonstrates the level of economic damage at stake, but by the end of the year the gap will close to single-digits.

“The longer the shutdown, the deeper the economic damage. Household consumption is limited to essential goods, which are only about 10% of the economy. The remaining 90% is either closed or disrupted. The economy will not be able to start back up all at once – it’s not like flipping a switch.

“The recovery will be uneven. We can expect that consumer spending will be muted for some time and will only come back as jobs return and uncertainty fades.”

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