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ECONOMY | 14-04-2020 16:02

UK GDP 'could fall 13%' in 2020 as virus death toll climbs

Britain's real GDP could fall by a whopping 35% in the second quarter of this year in the case of a three-month coronavirus lockdown, a government-funded watchdog forecasted Tuesday, as the country's death toll passed 12,000.

Britain's economy could shrink by 13 percent this year in the case of a three-month coronavirus lockdown, a government-funded watchdog forecasted Tuesday, as the country's death toll passed 12,000.

The Office for Budget Responsibility (OBR) warned that the impact of the pandemic could initially be a bigger shock to the UK economy than the 2008 financial crisis and even the world wars.

"The resulting 13 percent fall in annual GDP in 2020 would comfortably exceed any of the annual falls around the end of each world war or in the financial crisis," the OBR said.

In the model, real GDP could fall 35 percent in the second quarter, but bounce back quickly once the coronavirus restrictions are eased. 

Unemployment could also rise by more than two million to hit 10 percent in the second quarter, with the recovery in jobs lagging behind GDP, the OBR said.

"We're up to about 1.4 million people who have claimed Universal Credit (social security) and also other people who have claimed other things like Jobseeker's Allowance or Employment Support Allowance," Secretary of State for Work and Pensions Theresa Coffey told Sky News on Tuesday.

The model suggested half of those made unemployed by the crisis could return to work by the end of 2020, but that the unemployment rate at the end of 2021 could still be around 1.5 percent higher than pre-virus levels.

'Serious implications'

Britain's Chancellor of the Exchequer Rishi Sunak conceded in the government's daily coronavirus press briefing that the crisis would have "serious implications" for the British economy and warned ministers "can't protect every business and every household."

However, Sunak added he was confident the UK economy could rebound "quickly and strongly".

"While those economic impacts are significant, the OBR also expect them to be temporary with a bounce back in growth."

Ministers have announced huge public spending measures to support businesses and those out of work, leading to a large increase in predicted borrowing. 

The OBR scenario envisages a net borrowing increase of £218 billion (US$274 billion) in 2020 to 14 percent of GDP, the largest single-year deficit since World War II. 

Measures taken by the government and the Bank of England are "likely to have only a limited effect... as the fall in output is largely the by-product of the impact of the health measures on the supply of, and demand for, goods and services," the OBR said.

It warned that the scenario "should not be taken as our view of the most likely path for the economy," which is highly sensitive to underlying factors.

Britain announced an initial three-week lockdown on March 23.

But with the death toll climbing, Foreign Secretary Dominic Raab – who is deputising for Prime Minister Boris Johnson as he recovers from his own bout of Covid-19 – warned on Monday that the UK would not lift the lockdown anytime soon. 

At the same briefing with Sunak, Stephen Powis, medical director of NHS England, said social distancing restrictions were working.

"[There] is evidence that is now accumulating, that the benefit of that social distancing of reducing transmission is now beginning to be manifest in stabilisation in hospital admissions," he said.

Death toll rises

Officials on Tuesday announced that the number of people who have died in hospital in Britain from the coronavirus has risen to 12,107.

There was a daily increase of 778 deaths, slightly up from the 717 recorded on Monday but well down from the 980 on Friday.

The official figures released Tuesday showed that the number of people who have tested positive for Covid-19 has reached 93,873.

However, these figures were published as fears grow about the true number of deaths in UK care homes, with charities sounding the alarm that there have been many more fatalities than reported.

A recent study by researchers based at the London School of Economics looking at data from five European countries - excluding Britain - found care home residents account for 42-57 percent of all Covid-19 related deaths.

But new figures from the Office for National Statistics on Tuesday found a total of only 217 deaths and suspected deaths involving Covid-19 in care homes in England and Wales up until April 3.

A further 33 people died in hospices, 136 in homes and three in other "communal establishments".

David Behan, executive chairman of Britain's largest care home operator HC-One, said Tuesday that coronavirus is present in 232 of its homes - about two-thirds of the total.

He said 311 residents had died of coronavirus or suspected coronavirus, adding that a member of staff also died over the weekend.

by James Pheby & David Harding, Agence France-Presse

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