The Organisation for Economic Co-operation and Development (OECD) has predicted a steeper fall in UK gross domestic product (GDP) than previously thought, noting that the nation is at a “critical juncture” amid COVID-19 management and Brexit negotiations.
It said the UK’s economic recovery from the pandemic is thought to be among the world’s slowest, bringing into the fore the extent of the downturn in Britain.
The organisation, which represents 37 developed nations around the world, predicts GDP will fall by 11.2% in 2020 as a whole. Growth of 4.2% in 2021 and 4.1% in 2022 is projected to be driven by a rebound of consumption, while business investment will remain weak due to spare capacity and continued uncertainty.
The report said: “Until an effective vaccine is broadly deployed, risks of further outbreaks will dent confidence,” noting that increased border costs due to Brexit will weigh on imports and exports from 2021.
It noted that unemployment will increase despite the benefits of the COVID-19 Job Retention Scheme.
“Bankruptcies are set to rise, although extensions to crisis loan schemes are set to soften the increase,” it continued.
The report advises that fiscal and monetary policies should stay supportive until the recovery firmly takes hold.
“Closely monitoring the situation, adapting and targeting support to hard-hit areas and sectors, while allowing structural change to take place are key challenges going forward,” it said.
“Extending increased levels of cash support and training to the unemployed can help this restructuring.”
It warned that reaching a free trade agreement with the EU is essential to limit disturbances to exporting and importing industries.
The report said that initially strong economic rebound from shutdowns due to the pandemic has ground to a halt, referring to a decline in retail footfall, and an increase in businesses reporting falling turnover.
The number of Universal Credit claimants also remained constant from September to October, despite an increase in job vacancies.
It notes that over 7% of the labour force was still fully furloughed on 31 August, and more than 15% of eligible employees were fully furloughed in some sectors.
The OECD had previously warned that the UK’s plunge in economic output is set to be worse than that experienced by France, Italy, Spain, Germany, and the US.
Under previous predictions, it said if there is no second wave of the virus, the country’s economy will contract by 11.5% in 2020, the sharpest decline due to be experienced by any of the 37 members of the organisation.
While the UK will be the worst-affected without a second wave, Spain and France will suffer a larger decline in such a “double-hit” scenario, according to the economic outlook.
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