Economy slumps by 11.3 per cent, largest fall in 300 years - OBR
25 November 2020, 13:19 | Updated: 27 November 2020, 20:13
The UK's "economic emergency has only just begun"
The Chancellor has said that the economy will shrink this year by 11.3 per cent, the largest contraction for three hundred years, due to the coronavirus crisis.
Unveiling the spending review for the year ahead in the Commons, Rishi Sunak said the economy will "contract this year by 11.3%, the largest fall in output for more than 300 years," according to the official forecast from the Office for Budget Responsibility (OBR).
Mr Sunak said: "Our health emergency is not yet over. And our economic emergency has only just begun. So our immediate priority is to protect people's lives and livelihoods."
Read more: Latest reaction to the Chancellor's spending review - live
Read more: National Living Wage increased to £8.91 an hour in Chancellor's Spending Review
Read more: Backlash as UK slashes foreign aid below UN 0.7% target with no end date
The spending review revealed:
- GDP to shrink 11.3% this year - biggest fall in 300 years
- Borrowing to reach £394bn, the highest figure in peacetime
- Unemployment to hit 7.5% next year with an estimated 2.6m people out of work
Mr Sunak said: "As the restrictions are eased, they (the OBR) expect the economy to start recovering - growing by 5.5% next year, 6.6% in 2022, then 2.3%, 1.7% and 1.8% in the following years.
But he told MPs that the OBR did not expect the economy to return to its pre-crisis levels until the end of 2022 and the damage was likely to last.
The "long-term scarring" would mean that in 2025 the economy will be around 3% smaller than expected in March, he said.
Read more: Follow the latest developments LIVE
"Even with growth returning, our economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022 - and the economic damage is likely to be lasting. Long-term scarring means, in 2025, the economy will be around 3% smaller than expected in the March Budget."
Mr Sunak said the UK is forecast to borrow a total of £394 billion this year, equivalent to 19% of GDP, telling MPs: "The highest recorded level of borrowing in our peacetime history.
"Borrowing falls to £164 billion next year, £105 billion in 2022/23, then remains at around £100 billion, 4% of GDP, for the remainder of the forecast.
"Underlying debt - after removing the temporary effect of the Bank of England's asset purchases - is forecast to be 91.9% of GDP this year."
The Chancellor said borrowing would fall to £164 billion next year, £105 billion in 2022-23, and then remain at around £100 billion for the remainder of the forecast period.
Mr Sunak said underlying debt is forecast to continue rising in every year, reaching 97.5% of GDP in 2025-26, telling MPs: "High as these costs are, the costs of inaction would have been far higher.
"But this situation is clearly unsustainable over the medium-term. We could only act in the way we have because we came into this crisis with strong public finances. And we have a responsibility, once the economy recovers, to return to a sustainable fiscal position."
The Chancellor reiterated the UK is facing an "economic emergency", but insisted business insolvencies have fallen compared to last year, adding: "The latest data shows the UK's unemployment rate is lower than Italy, France, Spain, Canada and the United States."
