London: Britain’s economy could shrink by 13 per cent in 2020 in the case of a three-month coronavirus lockdown, according to a scenario published Tuesday by fiscal watchdog the Office for Budget Responsibility.
“The resulting 13 per cent fall in annual GDP in 2020 would comfortably exceed any of the annual falls around the end of each world war or in the financial crisis,” the OBR said.
In the model, real GDP could fall 35 per cent in the second quarter, but bounce back quickly once the restrictions are eased.
Unemployment could also rise by more than two million to hit 10 per cent in the second quarter, with recovery lagging behind GDP, said the OBR.
The government has already announced huge public spending measures to support businesses and those out of work, leading to a large increase in predicted borrowing.
The scenario envisages a net borrowing increase of 218 billion pounds in 2020 to 14 per cent of GDP, the largest single-year deficit since World War II.
Public sector net debt could peak at over 100 per cent of total economic output during the year, according to the model, ending 2020 at 95 per cent.
The OBR warned that the scenario “should not be taken as our view of the most likely path for the economy”, which is highly sensitive to changes in underlying factors.
“It would not require particularly large changes to the highly uncertain assumptions about prospects for individual sectors to alter the estimated fall in GDP significantly and it is quite plausible that the impact could be materially smaller or larger than in our reference scenario,” it explained.