The OBR’s dire outlook for the economy could see the UK suffer the worst recession for three centuries, but experts warn against a knee-jerk move to end the coronavirus lockdown to save growth.
While avoiding the use of the word “recession”, the Treasury admitted in response to the OBR report that Britain was heading for a “very significant hit” from the coronavirus crisis.
The Resolution Foundation described the scenario-based analysis as “incredibly grim”, but said it may not end up being the worst case, particularly if the lockdown lasts more than three months.
Despite the severity of the hit, the think-tank cautioned against ending the lockdown too early, saying it could not only lead to more deaths but also the need to bring in stricter and longer-lasting restrictions later.
Torsten Bell, chief executive of the Resolution Foundation, said: “The UK is experiencing a deeper recession than we have seen for three centuries and is on course for the highest borrowing since the war.
“While driven by the Government’s twin decisions to close down large swathes of our economy and to offer unprecedented support to firms and families, its actual cause is the coronavirus outbreak itself.
“This should caution against those arguing that policy makers can avoid these costs by simply ending the current lockdown.”
The CBI business body called on the Government to start thinking ahead to devise a post-lockdown plan for restarting the economy.
Rain Newton-Smith, CBI chief economist, said: “The need for coordinated global action to rebuild confidence has rarely been greater.
“The Government will also need to work with businesses and many parts of civil society here at home, to create a plan to revive the economy once the lockdown is lifted.”
Investment firm Crimson Black Capital branded the report “far too optimistic” and said financial markets were bracing for a bigger impact from coronavirus.
Ayush Ansal, chief investment officer at Crimson Black Capital, said: “Markets are increasingly of the view that the impending UK recession is more likely to be L-shaped than V-shaped.
“The sheer extent of the UK’s current economic displacement could lower its growth trajectory for many years to come.
“If the UK can emerge from the pandemic via a U-shaped recession, in many corners that will be considered a victory of sorts.”