Economy ‘to shrink by record 15%’
BRITAIN’S economy will shrink by 15 per cent between April and June in the steepest contraction on record, experts have predicted.
As business closures take their toll, the UK will enter the deepest recession since the financial crisis, they warn today.
The predictions from the Centre for Economics and Business Research (CEBR) come after Michael Gove hinted that a new era of austerity is on the horizon because the Government will have to repair the enormous hole the virus crisis has left in its finances.
It came as the Fraser of Allander Institute, Scotland’s leading economic think tank, warned that the country could be headed for a ‘depression’. Its deputy director Mairi Spowage said the economic contraction would be ‘unprecedented’.
Appearing on BBC Scotland’s Politics Live, Miss Spowage was asked if the country was moving into a recession. She said: ‘Yes, absolutely. There isn’t really an agreed definition for depression, but I think that the economic contraction we are potentially looking at here will be fairly unprecedented.’
Miss Spowage said retailers would be among the worst hit and warned rural areas would suffer badly due to the massive decline in tourism.
The Treasury has announced a series of unprecedented rescue packages to limit the damage to the economy.
Mr Gove, the Chancellor of the Duchy of Lancaster, said it was right to enforce the financially damaging lockdown on British society as it is not possible to ‘put a price on lives’.
‘How do you put a price on life?’
But experts think the rescue measures could cause Government borrowing to shoot up to £180billion, or 7 per cent of the UK’s economic output, in the current financial year.
When added to the national debt, this would leave the UK with a debt pile equal to the size of its economy next year.
Even after the helping hand from Chancellor Rishi Sunak, the CEBR expects the UK’s unemployment rate to jump to 7 per cent in July to August.
A 15 per cent contraction in the economy between March and June would be the largest quarterly slowdown since current records began in 1997.
The previous quarterly record was set in the last three months of 2008, in the depths of the financial crisis, when the economy shrank by 2.2 per cent.
The CEBR also thinks house prices will fall by an average of 13 per cent in the year to next March. Boris Johnson has urged housebuyers and sellers to suspend completion dates until the lockdown is over.
The Bank of England said the pandemic would catalyse an ‘economic shock that could prove sharp and large, but should be temporary’.
On the BBC’s Andrew Marr show, Mr Gove stressed that the UK’s response package was ‘among the most generous in the world’. ‘That will increase the amount that we borrow but the Chancellor and the economic team at the Treasury are confident we can pay that off in due course,’ he said. ‘But ultimately, how do you put a price on life?’