It just keeps on getting worse. Like the death toll from Covid-19 itself, forecasts for the economy in the wake of the crisis keep on creeping upwards. Today, the Office for Budget Responsibility (OBR) forecasts that UK GDP could contract by 35 per cent by June if the lockdown continues until then, before ‘bouncing back quickly’. Unemployment could rise, it says, by two million, with the unemployment rate climbing to 10 per cent. That is quite a shock given that on the eve of this crisis we were celebrating the highest employment ever and the lowest unemployment in 45 years.
The 35 per cent contraction is making all the headlines today – as well it might. The OBR does forecast, however, an equally rapid recovery in growth so that by the end of the year annualised growth will be running at pretty much the same as it was before the crisis: somewhere between 1 and 2 per cent. Given the vast number of businesses which are facing bankruptcy if the lockdown continues for weeks, this seems quite an optimistic forecast. I can see large businesses bouncing back – or at least those which have not gone under in the meantime – but what will the lockdown do for smaller businesses? What about all those small-time entrepreneurs who put in their time, money and energy to find the rug pulled from beneath them? It is going to take more than a few months to restore their entrepreneurial spirit.
What is most eye-catching of all about the OBR’s forecast is the bit which hasn’t been so prominently reported. It is now forecasting public sector borrowing in 2020/21 to come in at £273 billion. This is nearly twice the deficit that Gordon Brown left behind in 2010 – and which, of course, led to a decade of ‘austerity’.