The economic shock caused by coronavirus is set to plunge the UK into a steeper recession than that of the financial crisis as activity grinds to a halt amid the lockdown, experts have warned.
Economists are predicting double-digit declines in gross domestic product (GDP) that would dwarf the 6% decline seen between 2008-2009.
While they are yet to make up their minds exactly how bad the Covid-19 economic crash will be, most are in agreement it will be ferocious.
The most recent survey data from the main sectors of the economy was so dire it prompted economists to warn over a recession on a scale “not seen in modern history”.
Samuel Tombs, at Pantheon Macroeconomics, is predicting a shortfall in GDP of between 15% and 20% in the weeks during the lockdown.
He believes output will shrink by around 1.5% in the first quarter of 2020, but plummet by 13% in the following three months – tipping the UK into recession, as defined by two quarters in a row of declining output.
He said: “In normal recessions, many businesses report relatively small incremental declines in output.
“By contrast, many firms now likely are reporting huge declines in activity.”
But as the Bank of England has stressed, the impact is likely to be temporary with activity rebounding strongly once social distancing measures are lifted.
Pantheon is forecasting a possible 10% rise in GDP over the third quarter and a 4% increase in the final three months of 2020.
This comes with a big caveat, though, and Mr Tombs cautions a “V-shaped recovery is far from assured”.
“With great uncertainty regarding how quickly a vaccine for Covid-19 can be developed, a key downside risk to our medium-term projections is that the virus forces another lockdown next winter,” he added.
And there are worries over long-lasting effects on the economy caused by the pandemic.
There is likely to be some long-term impact on the supply-side of the economy, with many firms pushed to the brink and beyond by the lockdown while unemployment is likely to rise.
Meanwhile, the UK will certainly be left nursing a ballooning public deficit as a result of action to prop up the economy, which JP Morgan experts estimate could hit over 10% of GDP this year alone.
The Office for Budget Responsibility recently said Britain should not be “squeamish” about government borrowing and called for wartime measures.
It pointed out the UK ran budget deficits in excess of 20% of GDP five years in a row during the Second World War, which it said was “the right thing to do at the time”.