Economy is unlikely to bounce back, OBR admits

THE economy is likely to see a “slower recovery” from coronavirus than initially anticipated, the Office for Budget Responsibility has admitted.

Rowing back on its original suggestion of a “V-shaped” model, Robert Chote, the body’s chairman, said it was likely the economy would not be “bouncing back”.

The OBR had previously suggested that the UK’S gross domestic product would drop by 35 per cent before returning to similar levels seen before the outbreak in 2021.

Mr Chote said the economic challenges posed by the virus would “certainly” lead to higher borrowing, and warned of the “scarring” effect on the economy.

He said: “The fact that the level of debt goes up on its own doesn’t necessarily mean you have to have the sort of austerity that followed the financial crisis.

“Much more important to that is whether you have this effect of scarring of the economy. If the economy is permanently smaller, then you get permanently less tax revenue.”

Torsten Bell, the chief executive of the Resolution Foundation, said that it was important to deal with the economic impact of coronavirus “in the right order”.

He said: “The Government’s first priority once the virus is under control is to secure a sustained economic recovery, a key part of which should be tackling what may be the highest unemployment in a quarter of a century. It is critical we avoid scarring the careers of those unlucky enough to have born the brunt of the economic impact of the corona crisis.

“Only once the recovery has been secured should the Government turn to the question of balancing the books.

“While there will be tough decisions to take, a repeat of the austerity of the 2010s is neither desirable or feasible.

“Britain has the space to ensure we get the substance and timing of those decisions right. While the UK will emerge from the crisis with higher debt levels, record low interest rates mean that the cost of that debt will remain low for some time to come.”