The UK economy is likely to face the steepest downturn this year in the G20, according to the leading credit ratings agency Moody’s.
Analysts at the ratings agency expect Britain’s GDP to contract from peak to trough by 10.1% this year, according to Reuters.
“We forecast a contraction of 10.1% in the UK's GDP for this year, but expect a gradual subsequent recovery on the back of the easing in lockdown measures, with growth rebounding to 7.1% next year,” they said in a note.
The agency expects Britain’s economy to face a steeper contraction than every other member of the G20 group of some of the world’s largest economies.
Moody’s released a statement (paywall) on Friday on Britain’s economic outlook. It noted chancellor Rishi Sunak’s summer statement this week, which included stimulus of up to £30bn ($38bn), did add “further policy support to mitigate coronavirus-induced shock.”
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But Britain’s deficit and public debt ratio are also expected to significantly deterioriate this year, given the scale of borrowing-funded stimulus measures amid lower tax receipts during the crisis. It predicted debt will surge as a share of GDP by 24 percentage points.
It comes after the UK chancellor unveiled another package of wide-ranging spending plans in his “summer statement” on Wednesday (8 July), designed to support the coronavirus-hit economy. They included cash for employers to keep and hire staff, VAT and stamp duty cuts, home improvement vouchers and eating-out discounts.
Sunak also said on Thursday (9 July) he may eventually take “difficult” decisions to strengthen Britain’s public finances in future. Speaking on BBC Radio 4’s Today programme on Thursday, he declined to rule out tax rises in future when asked about the cost of such stimulus plans. “I’m not going to write future budgets now,” he said, a line he has used repeatedly during the crisis.
But he added: “Over the medium-term, the right thing for the economy will be to have sustainable and strong public finances. And of course I will make the decisions that are required, difficult as they may be, in order for us to return to that place.”
He sought to focus instead on the immediate recovery and government support, however. He emphasised the current low cost of government borrowing, allowing it to fund a dramatic expansion of spending. He also said a strong economic recovery was the government’s priority, with more stimulus measures expected in the autumn.
Such a recovery in growth would boost tax receipts, reduce the current spending deficit and reduce debt as a proportion of GDP. But experts have warned about the long-term damage of the pandemic and current downturn, and fear social distancing and the effects of lockdown could hamper recovery for some time to come.
Sunak admitted Britain’s economy was particularly reliant on “social consumption” for growth, and was therefore particularly exposed to the impact of continued social distancing and caution over the virus.
“The focus right now at this phase of crisis is – let’s try and have as strong a recovery as possible. Lets try and protect, create and save as many jobs as possible,” he said.
He said minimising long-term damage and scarring to the economy from the current crisis was “the best thing we can do for our long-term public finances.”