Britain’s fiscal watchdog has slashed its outlook for UK economic growth this year to its lowest level since the financial crisis even before an expected “significant” hit from coronavirus.
The Office for Budget Responsibility (OBR) said it expects growth to fall to 1.1% in 2020, down from 1.2% last year.
The 2020 forecast is sharply lower than its previous prediction for growth of 1.4% and marks the weakest expansion since the 2009 recession after the financial crisis, when the economy contracted by 4.2%.
But Chancellor Rishi Sunak said the OBR forecasts do not take into account the recent impact of the coronavirus outbreak.
Echoing words from Bank of England governor Mark Carney, he warned coronavirus will have a “significant impact on our economy”, though he said it would be temporary.
He said: “We can’t avoid a fall in demand, because the primary driver of that reduction in consumption – the primary reason people are not spending as normal is because they’re following doctors’ orders to stay at home.”
It comes after Mr Carney said the Covid-19 economic shock could prove “large and sharp” after announcing an emergency rate cut to 0.25% earlier on Wednesday to counter the impact of Covid-19.
But the Chancellor said the OBR estimates his Budget spending plans worth £175 billion over the next five years will boost growth over the next two years by 0.5 percentage points.
Though it will take its toll on the country’s borrowing level, he added.
Borrowing set to rise over the next two years. Underlying forecast revisions are largely offsetting, so almost all the change is thanks to Government policy decisions.#Budget2020pic.twitter.com/bybw0XJMgy
— Office for Budget Responsibility (@OBR_UK) March 11, 2020
The OBR forecasts borrowing will jump from 2.1% of gross domestic product (GDP) in 2019-20 to 2.4% in 2020-21 and 2.8% in 2021-22.
It then forecasts borrowing will fall to 2.5%, 2.4% and 2.2% in the following years.
However, the OBR borrowing forecasts do not take into account the Chancellor’s £30 billion of fiscal stimulus, nor the Bank’s action, to combat Covid-19.
The OBR’s latest growth forecasts see a slight upgrade to growth in 2021, to 1.8% from 1.6% pencilled in previously, but lowered predictions for following years, to 1.5% in 2022, 1.3% in 2023, and 1.4% in 2024.
It also expects inflation at 1.4% this year, and a rise to 1.8% next year and then, for the rest of the forecast period, remaining on or around the 2% target.