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UK GDP to be reduced about 30 per cent

Christian Fernsby |
GDP is estimated to be reduced by about 30 per cent when the lockdown is in operation.

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Topics: GDP    UK   

With the lockdown assumed to be in place from around the middle of March to the middle of May, UK GDP falls by around 5 percent in 2020Q1 and 15 per cent in 2020Q2, says National Institute of Economic and Social Research.

On the assumption of a progressive relaxation of stay-at-home measures, GDP then recovers some of the lost ground and almost re-attains its 2019Q4 level by 2021Q4 but there are significant downside risks, alongside uncertainties that cannot be easily resolved.

The Coronavirus Job Retention Scheme is assumed to be effective in limiting the fall in employment in 2020 to around 1½ million.

Unemployment rises to around 3 million, about 8½ per cent of the labour force, and falls back towards 2 million in 2021.

Public sector borrowing rises from 2.6 per cent of GDP in 2019–20 to just over 10 per cent of GDP in 2020–21.The counterpart to higher public sector borrowing is higher private sector saving.

The deficit on the current account of the balance of payments falls from 3.8 percent of GDP in 2019 to around ½ per cent of GDP in 2020 as imports fall by more than exports.

Despite the large rise in unemployment and contraction in output, CPI inflation falls only a little below the 2 per cent inflation target in the main-case forecast scenario.The household saving ratio rises from around 6 per cent in 2019 to 17 per cent in 2020, when spending opportunities are limited, before falling back to 8 per cent in 2021.