Growth forecasts slashed as effects of Covid-19 start to hit

Britain’s fiscal watchdog has slashed its outlook for UK economic growth this year to its lowest level since the financial crisis – even before an expected “significant” hit from coronavirus.

The Office for Budget Responsibility (OBR) said it expects growth to fall to 1.1% in 2020, down from 1.4% last year, and borrowing to rocket after the UK Government turned on the spending taps.

The 2020 growth forecast is sharply lower than its previous prediction of 1.4% and marks the weakest expansion since the 2009 recession after the financial crisis, when the economy contracted by 4.2%.

The OBR forecasts do not fully take into account the impact of the coronavirus outbreak, having only factored in a knock to growth of 0.1 percentage points.

In its economic and fiscal outlook released alongside the Budget, the OBR said: “It has become clear that the spread of coronavirus will be far wider than assumed in our central forecast, pointing to a deeper – and possibly more prolonged – slowdown.”

Echoing words from Bank of England governor Mark Carney, Chancellor Rishi Sunak warned coronavirus will have a “significant impact on our economy”, though he said it would be temporary.

He said: “We can’t avoid a fall in demand, because the primary driver of that reduction in consumption – the primary reason people are not spending as normal – is because they’re following doctors’ orders to stay at home.”

The OBR outlined a raft of possible impacts on the economy, from slowing exports to supply chain disruption and a slowdown in spending by firms and consumers due to uncertainty as well as likely workforce quarantine action.

But the chancellor said the OBR estimates his Budget spending plans, worth

£175 billion over the next five years, will boost growth over the next two years by

0.5 percentage points.

But it will take its toll on the country’s borrowing level, he added.

The OBR forecasts borrowing will jump from £47.4bn this financial year to £54.8bn in 2020-21 before surging to a six-year high of £66.7bn in 2021-22.

The independent forecaster said the chancellor would miss his fiscal targets, with the deficit set to rise and level off at around £60bn a year.

But Mr Sunak said he has until 2022-23 to meet his current fiscal target to balance the current budget.

The OBR’S latest growth forecasts see a slight upgrade to growth in 2021, to 1.8% from 1.6% pencilled in previously, but lowered predictions for 2022 to 1.5% and 1.3% in 2023, and 1.4% in 2024.

It also expects inflation at 1.4% this year, and a rise to 1.8% next year.