The UK’s economic recovery next year will be among the slowest of any country, according to the latest forecasts by the Organisation for Economic Co-operation and Development (OECD).
From a selection of twenty countries and the Eurozone, only Argentina is set to fare worse, with Britain’s economy remaining 6.4 per cent smaller than its late 2019 level at the end of 2021 and Argentina suffering a 7.9 per cent shortfall. Global GDP is however expected to have recovered to 2019 levels by the end of next year.
The forecasts set out a desperate picture for Britain, in spite of the UK government spending more than any other leading nation on coronavirus support packages for the economy. The Paris-based organisation anticipates the British economy to contract by 11.2 per cent in 2020, the deepest recession of all G7 nations, before growing by 4.2 per cent in 2021 and 4.1 per cent in 2022. Growth for this year and next was downgraded due to the lockdown and continuing restrictions.
Unemployment is expected to peak at 7.5 per cent and to average 7.4 per cent for 2021, leaving an additional million people out of work. The economy is predicted to be 2 per cent smaller at the end of 2022 than it was in the final quarter of 2019.
The forecast is more pessimistic than projections published last week by the Office for Budget Responsibility (OBR), which expects UK national income to recover to 2019 levels by the end of 2022 and employment to rebound more quickly.
The pessimism is due to an expectation that household consumption will be weaker than anticipated and that there will be virtually zero business investment, which has dropped by twenty per cent during the pandemic.
Brexit is a key reason for the slower recovery than other advanced nations, with economic uncertainty dissuading investment by both British firms and from overseas. “The UK is at a critical juncture,” the OECD said. “Uncertainty surrounding Brexit is continuing to weigh on growth prospects. Increased border costs will weigh on imports and exports. Private investment will recover only slowly due to elevated uncertainty.”
The organisation also suggested that, whilst the support schemes to help people and companies through the health crisis have been some of the most expensive in the world, that money may not have been well spent.
“A striking feature of the outlook is the absence of correlation between the extent of fiscal support and the resulting economic performance, suggesting not all measures have been used wisely,” Laurence Boone, the OECD’s chief economist, said.
A no-deal Brexit would compound Britain’s economic troubles, the OECD said. “Failure to conclude a trade deal with the EU by the end of 2020 would entail serious additional economic disturbances in the short term and have a strongly negative effect on trade, productivity and jobs in the longer term.”
The bleak picture for Britain was in contrast with increased positivity about the global outlook. “Progress with vaccines and treatment have lifted expectations and uncertainty has receded,” Ms Boone said. The global economy is expected to shrink by 4.2 per cent this year, but to rebound 4.2 per cent next year and by 3.7 per cent in 2022.
2nd December 2020.
