Coronavirus Recession 'Quite Possible' This Year, Spending Watchdog Warns

Office for Budget Responsibility also predicts that Boris Johnson's proposed Brexit trade deal will depress growth by 4% over 15 years.

A recession caused by coronavirus is “quite possible” this year, Britain’s government spending watchdog has warned.

The Office for Budget Responsibility also found that the Brexit vote had already caused a 2% hit to the UK economy, while Boris Johnson’s proposed trade deal with the EU would result in 4% of lost growth over 15 years.

The experts made their assessments of the two biggest crises to hit the UK in recent years as chancellor Rishi Sunak unveiled £12bn of spending aimed at tackling the coronavirus outbreak.

And it came after financial markets tanked in recent days as coronavirus spread around the world, with Italy being put into lockdown and a pandemic being officially declared.

Sign up now to get The Waugh Zone, our evening politics briefing, by email.

The OBR said coronavirus was “likely” to cause a “significant” hit to the UK economy and public finances but stressed it was impossible to predict the size or duration of impact “with any confidence”.

Based on information available on February 14 before coronavirus really began to take hold in the UK, the OBR predicted just a 0.1% hit to GDP growth in its economic outlook, which accompanied the Budget.

But the outbreak now presents a “clear downside risk”, with the chief medical officer declaring an epidemic likely and the Bank of England warning the shock to the economy “could prove large”.

“A recession this year is quite possible if the spread of coronavirus causes widespread economic disruption”

If large numbers of people fall sick and are forced into self isolation the virus will reduce demand for goods and services and the ability of businesses to supply them, the OBR said.

That will in turn reduce incomes and consumer spending while the government will need to pour cash into public services like the NHS to tackle coronavirus.

The OBR warned: “Since we closed our forecast, it has become clear that the spread of coronavirus will be far wider than assumed in our baseline forecast, pointing to a deeper – and possibly more prolonged – slowdown.”

The report went on: “Historically, the chance of the economy falling into recession at some point in a five-year period is roughly one-in-two.

“But a recession this year is quite possible if the spread of coronavirus causes widespread economic disruption.”

But the OBR stressed that over the long-term the impact “is likely to be less significant, unless the outbreak inflicts lasting damage on the economy’s supply capacity”.


The experts also found that the government’s proposed Brexit trade deal was likely to cause a 4% hit to economic growth over the next 15 years, after taking an average of independent assessments of a typical free trade deal.

Since the referendum vote to leave the EU potential economic output has already been cut by 2% compared to what it would be if it had not happened, the OBR said.

It blamed vastly depressed business investment and firms diverting resources from production to preparing for different Brexit outcomes including no deal.

Before the referendum, real business investment was forecast to rise by 20% by now but in the face of the Brexit vote has “barely grown” due to uncertainty.

But the bulk of the economic pain is yet to come, with the UK only experiencing around a third of the long-run hit to productivity so far, with another third to come over the next few years and the rest beyond that.


What's Hot