March 23 2020 @ 10:34 by Steven Hugill
The UK’s economy could slump to levels worse than the last recession if containment measures fail to stop the coronavirus outbreak, a business organisation has warned.
KPMG says UK GDP could fall by as much as 5.4 per cent this year – and another 1.4 per cent in 2021 – if action to stem COVID-19’s spread is unsuccessful.
However, it adds that if the virus is contained by the summer, the projected decline drops to 2.6 per cent, with a sharp recovery forecast for the first half of 2021.
In a report released today (Monday, March 23), KPMG says consumer spending and business investment will be particularly hard hit due to COVID-19 related disruptions and uncertainty.
Highlighting the difficulties faced by firms selling consumer goods and services, owing to restrictions on social gatherings and quarantine measures, the study also highlights how importers and exporters face multiple challenges of supply chain disruption, workforce loss and workplace shutdown.
Yael Selfin, chief economist at KPMG UK, said: “The COVID-19 pandemic is first and foremost a human crisis but there will also be a very substantial negative impact on the global economy and the UK’s economic performance this year and potentially next.
“Until we know how and when the COVID-19 outbreak will end, the scale of the negative economic impact will be difficult to quantify.
“However, it is now almost certain that the UK is slipping into its first significant downturn in over a decade.”
According to the report, Chancellor Rishi Sunak’s latest fiscal measures – which include paying 80 per cent of a worker’s salary if they are unable to work or furloughed due to the pandemic – will suppress some fears around unemployment.
Suggesting the jobless rate could peak at a relatively low 5.6 per cent in May, KPMG predicts the number will ease gradually to around 4.1 per cent by the first quarter of next year.
Yael adds: “With the Government charged with meeting an ambitious timetable for its post-Brexit trading relationship with the EU, the scope for further economic uncertainty this year was already high.
“However, the COVID-19 pandemic represents a far more dramatic short-term disruption to growth.
“The impact of the pandemic will be far reaching.
“It is likely COVID-19 will result in a massive expansion in the Government’s debt and this could threaten to dislodge its original vision to ‘level-up’ the UK economy, long after the pandemic is past – leaving the Chancellor with a big challenge on his hands.”