Britain’s economy is forecasted to contract by more than 14% this year with the lasting damage of the pandemic outbreak, a scenario foreseen by budget forecasters could pressure the government to borrow nearly half a trillion dollars. The Office for Budget Responsibility said spending cuts or tax hikes probably needed to fix public finance’s huge gap. UK is predicted to record the largest slump in annual GDP for 300 years, with falling output by more than 10% in all three scenarios, delivering an uncommon rise in borrowing through peacetime, to reach between 13%-21% of GDP, thus lifting debt above 100% GDP in all but the upside scenario. The middle scenario consists of a moderate long-term damage, foreseeing an output fall around 12.4%, with a lower slump of 14.3% if there’s more immersive damage.
The downside scenario showing the need to borrow up to 391 billion pounds ($490 billion) and the upside scenario predicted 263 billion pounds of borrowing with 10.6% of output falling.
The IMF also said last month that Britain's economy shows probability to shrink by more than 10% in 2020. The OBR prediction scenarios which has been used by the government does not include GDP published on Tuesday July 14, where it shows modest growth return after lockdown in May, or the announced measure last week by finance minister Rishi Sunak, which can cost up to 30 billion pounds and OBR said would have had effect on the borrowing outlook. The increase of the borrowing portion would leave Britain, with a history of low borrowing costs, financially vulnerable as the debt rises.
Moreover, despite the most optimistic scenario, the unemployment rate is still likely to peak at almost 10% in the third quarter of 2020, and the downside scenario showing the unemployment rate peaking at 13.2% in early 2021.
