Source link The United Kingdom economy is set to suffer its worst year since the financial crash of 2008, with a recent report by the Office of Budget Responsibility warning that economic growth will contract this year by 11 percent. This means that the UK is the only major advanced economy expected to experience contraction in 2021.
With the coronavirus pandemic resulting in the strict lockdown restrictions meant to try and contain the spread of infection, the British economy has been hit hard by closure of shops, restaurants and hospitality businesses. Moreover, the government’s spending plans to support businesses and individuals have eaten into the public sector’s coffers, resulting in an expected budget shortfall of 355 billion pounds. This is the equivalent of 16 percent of the nation’s annual economic output.
Although the Chancellor of the Exchequer, Rishi Sunak, presented a budget of 95 billion pounds on Wednesday, economists are of the view that this sum will not be enough to prop up the economy. This is buttressed by the findings of the Office for Budget Responsibility’s Fiscal Risks Report, which warns that the UK economy is vulnerable to downside risks that could deepen the prospects for long-term economic decline.
Britain is not expected to escape the contraction until 2023, when the Office for Budget Responsibility predicts growth of 3.2 percent. This will still make the UK the only G7 nation to have experienced economic contraction in 2021, with economic performance of all other to have returned to pre-pandemic levels.
Therefore, while the British economy is forecasted to experience a sharp V-shaped recovery initially, fears remain that the longer-term risks may cause further contraction and hamper growth prospects in the coming years. In addition to this, the debt levels expected to be incurred by the government, which are projected to reach almost 100 percent of GDP by the end of this fiscal year, will also contribute to slower growth.
The government is entering a crucial period in which it must ensure that any fiscal support given is targeted and effective in propping up the economy and supporting vulnerable businesses, whilst not necessarily increasing the overall debt. Otherwise, the UK could face increased economic uncertainty and slower growth for some time to come.