UK economy may not recover to pre-virus levels until 2024, says OBR

The UK economy might not recover from the coronavirus crisis until 2024, the fiscal watchdog has warned.

The Office for Budget Responsibility (OBR) said the “UK is on track to record the largest decline in annual GDP for 300 years”, warning that the economy could shrink by as much as 14.3% in 2020.

In its latest set of financial forecasts, it said a worst-case scenario would also not see GDP recover to pre-crisis levels until the third quarter of 2024.

Government measures to address the impact of the virus will also result in an “unprecedented peacetime rise in borrowing” this year, to between 13% and 21% of GDP, with the OBR currently predicting borrowing of £322 billion.

However, this scenario also projects that GDP could recover to its pre-virus peak by the first quarter of next year.

In its middling scenario, the OBR suggests GDP could fall by 12.4%, before returning to its pre-virus level by the end of 2022, with “elevated” levels of unemployment and business failures

Despite a recovery in output starting in May, the OBR said it assumes that GDP for June will be “20% below its level in February”.

The regulator said it therefore expects that GDP will have fallen 21% in the second quarter of the year, following a 2% fall estimated by the Office for National Statistics (ONS) for the first three months of 2020.

In its April scenario, the OBR pencilled in a 35% plunge in GDP for the three months to June, before a relatively quick rebound in activity.

Earlier on Tuesday, the ONS said that UK GDP grew by 1.8% in May following the easing of the lockdown but remained a quarter below its pre-pandemic levels.

This figure was also far short of the 5% rise predicted by a consensus of economists.

The OBR report, expected to be the final publication before Robert Chote steps down as chairman in October, also said that Government policy interventions announced before June 26 raised its borrowing projections by around £142 billion for the financial year, in its middling scenario.

Measures introduced in the Chancellor’s summer statement last week could add a further £50 billion to borrowing for the year, it added.

James Smith, research director at the Resolution Foundation, said: “The OBR’s forecasts reiterate the scale of the hit to our economy and public finances from the pandemic.

“With unemployment projected to match – or even surpass – its 1980s peak, the Chancellor has taken a significant gamble in not setting out more support for demand and employment in the hardest-hit sectors of the economy.

“The risk of 1.3 million furloughed workers moving straight into unemployment should prompt the Chancellor to consider further action on jobs.”