(Bloomberg) -- Britain could see its budget deficit soar to a peacetime record this year as the coronavirus lockdown hammers the economy, according to the country’s fiscal watchdog.
Borrowing, which was forecast to be 55 billion pounds ($69 billion), could now hit 322 billion pounds, the Office for Budget Responsibility said Tuesday. That’s the equivalent of over 16% of GDP, the highest for any year since World War II. Debt remains above 100% of GDP for the next five years.
The projections are based on a central scenario, meaning the deficit and debt could be higher if the economy performs worse than expected.
The OBR sees the economy contracting by more than 10% in all three of the scenarios it published, the most in three centuries. In the worst-case, output falls by over 14%.
Unemployment is expected to peak at 11.9% at the end of the year and, under the worst scenario, could reach as high as 13.2% early in 2021, the OBR said.
The watchdog no longer thinks the economy will make a rapid recovery next year, as it forecast in April. Instead, its central projection sees the economy growing 8.7% next year following a 12.4% contraction in 2020, implying a degree of scarring from the lockdown.
Output is expected to regain its pre-virus peak by the end of 2022, with GDP 3% lower in the first quarter of 2025 than previously forecast. The downside scenario sees the economy remaining below peak until the third quarter of 2024.
In a separate document, the OBR raised its estimate of the cost of direct government support for the economy to 192 billion pounds, in line with Treasury figures published last week.
©2020 Bloomberg L.P.
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