Bri­tain on course for deep re­ces­sion, warns KPMG

The Guardian - - Financial - Phillip In­man

Fac­tory and high street store clo­sures caused by the coron­avirus out­break will push the UK into a deep re­ces­sion this year, a study of the econ­omy has con­cluded.

KPMG’s lat­est quar­terly eco­nomic out­look found the UK’s na­tional in­come (GDP) has al­ready stalled as busi­nesses shut their doors and con­sumers re­strict their spend­ing to food and other es­sen­tial items.

Look­ing ahead, the busi­ness con­sul­tancy said the econ­omy will con­tract by 2.6% in 2020 if the gov­ern­ment gets on top of the cri­sis over the com­ing weeks and slump by 5.4% if the pan­demic per­sists through the sum­mer.

Yael Selfin, KPMG UK’s chief econ­o­mist, said: “The Covid-19 pan­demic is first and fore­most a hu­man cri­sis. But there will also be a very sub­stan­tial neg­a­tive im­pact on the global econ­omy and the UK’s eco­nomic performanc­e this year and po­ten­tially next.

“Until we know how and when the Covid-19 out­break will end, the scale of the neg­a­tive eco­nomic im­pact will be dif­fi­cult to quan­tify. How­ever, it is now al­most cer­tain that the UK is slip­ping into its first sig­nif­i­cant down­turn in over a decade.”

On Fri­day, the chan­cel­lor, Rishi Su­nak, said a new coron­avirus jobs re­ten­tion scheme would al­low em­ploy­ers to ap­ply to HMRC to cover 80% of the wages of staff they keep on up to a max­i­mum £2,500 a month.

Econ­o­mists said the bill to tax­pay­ers for the un­prece­dented scheme could run to bil­lions of pounds a month. The Res­o­lu­tion Foun­da­tion think­tank es­ti­mated that claims to cover 1 mil­lion em­ploy­ees would cost about £4.2bn over the ini­tial three-month pe­riod.

Last week, the Bank of Eng­land stepped in to re­duce busi­ness and con­sumer bor­row­ing costs with a cut in its base rate of in­ter­est to a record low of 0.1%.

In Scot­land, a £350m support fund was an­nounced to help those struggling dur­ing the out­break as part of Scot­tish gov­ern­ment measures worth about £1.9bn.

Cather­ine Bur­net, a se­nior part­ner at KPMG UK in Scot­land, said: “The lat­est eco­nomic out­look data high­lights the scale of the chal­lenge fac­ing busi­nesses across Scot­land.

“Fis­cal measures and im­me­di­ate re­lief ac­tion from the Scot­tish and UK gov­ern­ments have gone some way to help mit­i­gate some of the dam­age, but there’s wide­spread ac­knowl­edge­ment that more ac­tion will be needed in the com­ing months to keep the econ­omy mov­ing.”

Over the week­end, pubs, clubs and restau­rants were told to close by Boris John­son un­less they were sell­ing take­away food for home de­liv­ery. Shops in­clud­ing Top­shop, Ur­ban Out­fit­ters and Har­rods have closed, car fac­to­ries have can­celled shifts or shut down, and air­ports are ex­pected to be at a stand­still this week.

Selfin said the UK econ­omy was ex­pected to re­gain its pre­vi­ous level of out­put by the sec­ond half of 2021, as­sum­ing the pub­lic health measures put in place stem the rise in the num­ber of cases.

She added: “While both gov­ern­ments and cen­tral banks have moved quickly to of­fer fis­cal and mone­tary pol­icy support to the global econ­omy, more will be needed to shore up the econ­omy in the short term, in­clud­ing measures to help the most vul­ner­a­ble busi­nesses and house­holds, and pre­vent a deeper eco­nomic slump.”

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