Dire predictions for the post-crisis UK economy

Recent weeks have seen various dire predictions for the state of the UK economy following the coronavirus crisis.

But how bad could things get for UK plc?

According to a new study, the size of the UK economy could shrink by 20% *if* the lockdown remains in place for a year.

Consultancy Capital Economics made the prediction in a report, which calculated that each month in lockdown could equate to 1.5% shaved off annual growth for the UK economy.

If the lockdown stays in place until the end of June, as is widely anticipated, the economic cost is set to be a recession of 12% in 2020.

According to senior UK economist Ruth Gregory, the economy would suffer even more if multiple peaks of the virus prompted the government to keep tough social distancing measures in place until next April.

Tough ongoing restrictions could result in an economic contraction in 2020 of 19.6%.

Another consequence of prolonged social distancing could be a delay to economic output, with the size of the economy still 6% smaller than it would have been without the pandemic, by the end of 2022.

The forecasts from Capital Economics follow earlier modelling by the independent Office for Budget Responsibility, which considered a 35% cut to the size of the economy in the second quarter.

Their prediction assumed the lockdown stayed in place until the end of June, but around half of the current restrictions would be lifted between July and September.

Remaining restrictions would then be lifted in the last part of the year, with economic output bouncing back to its pre-crisis levels by the end of the year and an annual fall in GDP of more than 13%.

Commenting on the latest forecasts, Gregory explained that her scenarios were a simplified version of the likely result, saying:

The restrictions are unlikely to be relaxed all at once and there is already evidence that even while the economy is shut down some activity is trickling back.

The longer the restrictions are in place, the longer it may take the economy to recover to pre-recession levels because of scarring effects.

Indeed, in the past four recessions, it took between three and five years for the economy to return to its pre-crisis level.