The UK will suffer the worst economic crash of any major economy this year, credit ratings agency Moody’s has predicted, with Brexit acting as a drag after the coronavirus crisis.
Moody’s also said government debt as a share of national income will balloon by 24 percentage points compared to its 2019 level, two days after chancellor Rishi Sunak vowed to pump up to £30bn more into the coronavirus-hit economy.
In a note sent out yesterday, Moody’s analysts said they still thought the UK will suffer the biggest drop in GDP in the G20 this year, with the economy shrinking by 10.1 per cent.
Data from June, when Moody’s first made the prediction, predicted France’s GDP will also fall by 10.1 per cent but have a slightly better recovery. Italian GDP is expected to fall 9.7 per cent and the US’s by 5.7 per cent.
“Our forecast estimates a sharper peak-to-trough contraction for the UK than for any other G20 economy,” the analysts said. They said this takes account “of our view that lingering uncertainty around Brexit will hold back the recovery in the second half of the year”.
The UK economy will see a “gradual subsequent recovery on the back of the easing in lockdown measures,” Moody’s said. It predicted growth of 7.1 per cent in 2021.
“High-frequency indicators suggest that economic activity has gradually begun to recover after reaching a trough in April.”
Moody’s said the government’s huge fiscal stimulus package will help the economy bounce back but will hit the UK’s public finances hard.
“According to our baseline scenario, the public debt ratio will likely rise by 24 percentage points of GDP or more relative to 2019 levels,” it said.
The UK’s debt pile has already risen above 100 per cent of GDP. The government has so far spent around £190bn on tackling coronavirus with more likely in the autumn.