The coronavirus outbreak could drag the UK into a recession even more severe than the financial crash of 2008, according to new forecasts published today.
The UK economy is expected to contract 2.6 per cent this year assuming the pandemic can be contained by the summer, according to KPMG’s latest quarterly economic outlook.
However, a protracted health crisis could prompt a fall of 5.4 per cent — worse than the crash that brought global economies to their knees just over a decade ago.
Under both scenarios the economy is expected to recover by the second half of 2021 by the latest.
The forecasts are based on a range of scenarios, but KPMG warned the impact of the pandemic on global economic growth, consumer spending and business investment would be “highly significant” in all situations.
If public health measures stem the rise in the number of coronavirus cases by the summer, economic growth is expected to remain flat in the second half of the year with strong recovery early next year as uncertainty is reduced.
But if the pandemic persists, the decline is expected to continue into 2021.
Yael Selfin, chief economist at KPMG UK, said: “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.”
The report predicted that new measures announced last week by chancellor Rishi Sunak would restrict the UK’s unemployment rate to a “relatively low” 5.6 per cent in May.
KPMG said this would ease to roughly 4.1 per cent by the first quarter next year.
Businesses selling consumer goods and services will face a “dramatic” fall in demand as social distancing measures hit footfall, the report warned.
Selfin added: “It is likely Covid-19 will result in a massive expansion in government debt and this could threaten to dislodge the government’s original vision to ‘level-up’ the UK economy, long after the pandemic is past — leaving the chancellor with a big challenge on his hands.”