The UK’s GDP could fall by 13% this year as the prospect of second spike in coronavirus cases leads to further economic “uncertainty”, a financial expert has warned.
Richard Hughes, who is the Office for Budget Responsibility’s (OBR) prospective new chair, said the decline would be “twice as big” as the initial impact of the 2008 financial crisis.
Speaking to the Treasury Select Committee on Monday, he outlined the “exceptional economic shock” the UK had suffered during the pandemic.
“Based on the OBR’s latest forecast, we think GDP is going to fall by anywhere between 10% and 13% in 2020,” Mr Hughes said.
“The global financial crisis saw GDP fall by around 5% at its trough. So this is already twice as big as the initial impact of the 2008 financial crisis.”
The GDP or gross domestic product is a measure of the size and health of a country’s economy over time.
Back in May, the OBR – Britain’s fiscal watchdog – predicted the GDP for the year would fall by 12.8% – assuming a recovery in the second half of the year.
But Mr Hughes, who is a research associate at the Resolution Foundation think tank and an adviser to the International Monetary Fund, said the prospect of a second wave of coronavirus had “increased the level of uncertainty” around the UK’s economic recovery.
He said: “Usually you can assume in the course of a recession that once you’ve turned the corner things are going to gradually get better. And it’s all about the pace of that recovery.
“In this context you have divergent possibilities.”
A resurgence in the transmission of Covid-19 and future lockdowns would act as a “drag on the (economic) output”, while a vaccine could result in a “very rapid recovery of economic activity”, he said.
Mr Hughes said the UK’s GDP had declined “sharply” earlier this year, with falls in output and employment.
“Output fell by, we think, around 25% in one month in April, that’s five times faster than any one month fall in output that we saw in the 2008 financial crisis.” he said.
Mr Hughes appeared before the select committee as part of a pre-appointment hearing for the role of the OBR’s chair.
In June, Chancellor Rishi Sunak announced Mr Hughes as his preferred candidate for the position, replacing Robert Chote – whose term comes to an end later this year.