The UK’s budget watchdog has revised sharply higher its projections for the cost of the government’s response to the coronavirus crisis and warned the country remains on track for its worst economic slump in 300 years.
The Office for Budget Responsibility (OBR) said it now expected the chancellor’s support programmes for the economy – part-bolstered by Rishi Sunak‘s summer statement last week – to cost £192.3bn.
That was up from the £132.5bn figure it forecast just the previous month, as it outlined a grim toll on the economy from the enforced coronavirus hibernation.
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The OBR, which is independent of government, published a set of scenarios created to measure the potential hit to output, jobs and public finances over the medium term from COVID-19.
They suggested UK output could shrink by up to 14.3% this year, in the worst case, with the economy not recovering to pre-crisis levels until 2024.
Even under its most optimistic scenario, the OBR sees gross domestic product (GDP) declining by 10.6% this year – the worst performance for 300 years.
The central scenario saw 2020 output falling by 12.4%, with the jobless rate peaking at 11.4%. It currently stands at 3.9% for the three months to April.
Crucially, the OBR said its economic scenarios did not take into account the effects of the additional measures announced by the chancellor last week.
The budget body said they would have had a “material effect” on its findings, but came in too late to be included in Tuesday’s report.
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Its findings were released just hours after official figures showed the economy remained a quarter below pre-crisis levels in May, amid a tepid fightback from lockdown measures.
Manufacturing and online retail accounted for the improvement.
The OBR said it was likely that taxes would have to rise and/or spending be cut sharply to help account for an “unprecedented” surge in peacetime net borrowing – above £300bn under its central scenario.
Chancellor: ‘We can’t protect every job’
Shadow chancellor Anneliese Dodds said of the OBR’s virus response estimate: “This OBR analysis is very worrying.
“Unless the government takes urgent action, the UK’s unemployment crisis is going to get much worse.
“The chancellor must now listen to calls from Labour, business and trade unions and make the Job Retention Scheme live up to its name. Instead of withdrawing support across the piece, he must target it to sectors where it’s needed most.
“If he doesn’t act, even more people run the risk of being thrown into the misery of unemployment and our economy will continue to suffer.”