GDP in the UK is expected to fall by 30 per cent during the lockdown and will not reach the levels at the end of 2019 for two years according to the The National Institute for Economic and Social Research.
Their report out this morning paints a bleak picture for the country.
With the lockdown assumed to be in place from around the middle of March to the middle of May, UK GDP falls by around 5 percent in the first qquarter and 15 per cent in the seecond. On the assumption of a progressive relaxation of stay-at-home measures, GDP then recovers some of the lost ground and almost re-attains its 2019 level by the end of 2021 but there are significant downside risks, alongside uncertainties that cannot be easily resolved.
The Coronavirus Job Retention Scheme is assumed to be effective in limiting the fall in employment in 2020 to around 1½ million. Unemployment rises to around 3 million, about 8½ per cent of the labour force, and falls back towards 2 million in 2021.
Public sector borrowing rises from 2.6 per cent of GDP in 2019–20 to just over 10 per cent of GDP in 2020–21.
The counterpart to higher public sector borrowing is higher private sector saving. The deficit on the current account of the balance of payments falls from 3.8 percent of GDP in 2019 to around ½ per cent of GDP in 2020 as imports fall by more than exports.
Despite the large rise in unemployment and contraction in output, CPI inflation falls only a little below the 2 per cent inflation target in the main-case forecast scenario.The household saving ratio rises from around 6 per cent in 2019 to 17 per cent in 2020, when spending opportunities are limited, before falling back to 8 per cent in 2021.
“There is massive uncertainty about how long and how severe this crisis will be. For our reassuring main-case forecast scenario to come true it is necessary to believe that the complex network of relationships that make up the economy can be restored after the lockdown without any significant long-term damage,” said Garry Young, NIESR Deputy Director.
“So far the signs are promising, but the most significant challenges are likely to come as we approach end or winding down of the lockdown and the supportive schemes are withdrawn. In those circumstances, the government schemes will need to be adapted to help businesses survive in a partially recovered economy.”