Britain’s borrowing hits peacetime high as Covid fuels economic plunge not seen for 300 years

The U.K. announced Wednesday its largest peacetime borrowing level ever as the coronavirus pandemic is forecast to cause the largest plunge in economic output for 300 years. The British economy is forecast to contract by 11.3% in 2020, according to the Office for Budget Responsibility (OBR), before growing by 5.5% in 2021, 6.6% in 2022 and 2.3%, 1.7% and 1.8% in each of the following years.

GDP (gross domestic product) is not expected to return to pre-crisis levels until the fourth quarter of 2022, and the economy will be around 3% smaller in 2025 than expected in the government’s March budget. The OBR also forecast that borrowing is set to reach a total of £394 billion this year (6 billion), 19% of GDP, its highest level in peacetime history, before falling to £164 billion in 2021, £105 billion in 2022/3 and remaining at around £100 billion, 4% of GDP, for the remainder of the forecast period.

Underlying debt after removing the temporary impact of the Bank of England’s asset purchase program is forecast to be 91% of GDP this year, rising steadily to 97.5% in 2025/6. In his spending review Wednesday, British Finance Minister Rishi Sunak announced £280 billion in public spending to guide the country through the aftermath of the pandemic.

Next year, this will include £18 billion for testing, PPE and vaccines, £3 billion to support the recovery of the National Health Service (NHS), £2 billion on transport, £3 billion to local councils and £250 million to address homelessness. A further £2.6 billion will be given to devolved administrations in Scotland, Wales and Northern Ireland as part of the £55 billion expenditure in 2021.

However, the OBR has projected that unemployment will rise to a peak of 7.5%, or 2.6 million people, in the second quarter of 2021, before falling steadily to 4.4% by the end of 2024. Sunak announced a further £3 billion on Wednesday for the Department for Work and Pensions (DWP) to deliver a “three-year restart program” aimed at helping more than 1 million people who have been unemployed for over a year back into work.

Capital expenditure will total £100 billion in 2021, a £27 billion increase on last year, and Sunak also announced the creation of a new National Infrastructure Bank and greater investment in research and development (R&D).

Britain’s borrowing hits peacetime high as Covid fuels economic plunge not seen for 300 years, CNBC, Nov 25