Economy may take five years to recover, think tank suggests

RECOVERING from an economic crash caused by a long lockdown could take up to five years, an economic think tank has said.

In a report on the impact of coronavirus published today, the Resolution Foundation said a lockdown of six to 12 months could permanently wipe 5 to 7 per cent off the UK’S gross domestic product.

Its findings raise questions about the assumption of many analysts, as well as the Bank of England, that a recession caused by the health crisis will be followed by a short V-shaped bounce. A six-month lockdown could see unemployment reach 5 million in 2021 as the Government’s job retention scheme is phased out, the foundation said. “The longer the lockdown lasts, the more people are likely to find themselves without a job to return to when it ends,” its report says.

Last month, Dr Jenny Harries, England’s deputy Chief Medical Officer, said it could be six months before life returns to “normal”.

This week, the Chancellor suggested the UK could see a rapid return to normality after a downturn, citing the findings of the Office for Budget Responsibility, the independent forecaster. Challenged over whether it was realistic that the economy could shake off a shock within a matter of months,

Rishi Sunak said: “Yes, it will be difficult in the short term.

“I think the measures we’ve put in place will help and then … we can recover quickly and strongly and get our lives and economy back to normal.”

However, the foundation has warned about the “huge uncertainty” over the length of the lockdown and says the Treasury must take “further radical policy steps to strengthen its economic response to coronavirus”.

The think tank calls for Mr Sunak to reform the job retention scheme to allow furloughed workers to start to work part time to try to reheat the economy.

However, the report added that lifting the lockdown “too early” could lead to new cases of coronavirus flaring up and the reimposition of restrictions.