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14 April 2020updated 04 Sep 2021 2:04pm

UK GDP could shrink by 35 per cent in second quarter

By Samuel Horti

Unemployment could hit 10 per cent in the second quarter of the year while GDP could fall by 35 per cent, according to the Office for Budget Responsibility’s (OBR) “reference scenario” for the impact of coronavirus on the UK economy. A 35 per cent drop in GDP would represent the the largest quarterly contraction since 1908 (see graph below).

The scenario, which the OBR said was not not a forecast but “one scenario of many that could unfold”, shows GDP bouncing back quickly after the second quarter. Unemployment rises by more than two million during the quarter, before falling more slowly than GDP recovers. The scenario assumes three months of heavy restrictions on the UK public, gradually lifting over the subsequent three-month period.

Public sector net borrowing increases by £218bn in 2020-21 in the scenario, before returning to normal levels in the medium term. “That would be the largest single-year deficit since the Second World War,” the OBR said. The full report is available here.

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