With lockdown lifting, the government’s focus is now fully on repairing the damage from the Covid-19 pandemic to our economy. In this blog we look at three possible five-year economic scenarios outlined by the treasury.
Best-case scenario
Under this scenario, economic activity will rebound quickly, with GDP falling by 10.6% this year, but then returning to its pre-pandemic peak by the end of March 2021. Unemployment will reach a peak of 10% during this next quarter, and as many as 1.9 million people would be out of work next year. The government’s budget deficit will be 13% of GDP this year, but will gradually drop to pre-virus levels by 2025.
Central Scenario
Under this scenario, GDP will regain its pre-virus peak by the end of 2022, after a fall of 12.4% in 2020. Unemployment could double to 3.5 million in 2021, with a peak unemployment rate of 12% in the final quarter of 2020 – worse than at the height of the 2008 financial crisis.
The increased government borrowing to mitigate this hit to the economy would cause a budget deficit of 16% of GDP. As a result the UK’s national debt would then increase above 100% of GDP for the first time since the 1960s.
Worst-case scenario
Under this scenario, economic output would only recover to its pre-pandemic peak by 2024, resulting in a significant number of businesses failing, and persistently high levels of unemployment. Peaking at 13% in the first quarter of 2021, unemployment would be worse than during the 1980s, with as many as 4 million people out of work.
GDP would nose-dive by 14.3% in 2020, creating the worst recession for 300 years. The budget deficit would soar to 21% of GDP.
