In Brief

Reaction: UK economy ‘could shrink by 35%’ by June due to coronavirus

Office for Budget Responsibility’s warning is considered too optimistic by several analysts

The coronavirus pandemic could cause the UK economy to shrink by a record 35% by June, according to the independent tax and spending watchdog.

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

The Guardian described the forecast as “extremely grim” but several commentators felt that it was not pessimistic enough. 

Chris Giles of the Financial Times tweeted that the OBR’s scenario “assumes no scarring at all” and argued that this “assumption” will not “last the test of time”. 

Reuters’ Andy Bruce was also sceptical, arguing that the OBR is “assuming the economy returns to normal next year”. He added that he can “think of a few economists who are sceptical about that!”

Torsten Bell of the Resolution Foundation think tank also warned that things could get even worse. 

“Policymakers should recognise that these forecasts represent just one scenario for a three month lockdown. History shows that measures to control a pandemic can in fact last much longer,” he told The Independent.

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Responding to the data, Labour’s shadow chancellor, Anneliese Dodds, said: “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.”

Paul Johnson, director of the Institute for Fiscal Studies, told Sky News: “Tough decisions will have to be made which are likely to involve tax rises and higher debt for some time to come. The only other alternative would be another period of austerity on the spending side. That looks unlikely.”

The OBR has resurrected debate over how soon to lift the lockdown restrictions by forecasting that each additional month of tight controls on economic and social activity would cost the Treasury up to £45bn of additional borrowing.

However, points out the BBC’s economics editor Faisal Islam, “if the lockdown is lifted prematurely, the health system could fall over, workers might just refuse to go to work anyway, and none of that would be positive for the economy”.

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