UK economy hardest hit in world’s developed countries with 11.5% slump in 2020, predicts OECD

The UK economy is set to be the hardest hit among the world’s developed countries due to the coronavirus pandemic, a leading international organisation has warned.

The Organisation for Economic Co-operation and Development (OECD) says Britain’s economy is likely to slump by 11.5 per cent in 2020 – but it could contract by 14 per cent if there is a second wave of Covid-19 later this year.

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Its latest global economic outlook shows the UK’s plunge in gross domestic product (GDP) outstripping even that of other badly impacted European countries, in a “single-hit scenario”

Falls of 11.4 per cent are expected in France, 11.1 per cent in Spain, 11.3 per cent in Italy and 6.6 per cent in Germany.

The UK’s economy is expected to bounce back by 9 per cent in 2021, but in the second wave scenario, the recovery would be slow and painful, with growth of just 5 per cent in 2021.

It says UK activity has suffered particularly badly because of Britain’s largely service-based economy.

The services sector, which includes financial services, retail, hospitality, real estate and tourism, makes up around three quarters of UK gross domestic product (GDP) and has been badly impacted by the lockdown restrictions to contain Covid-19.

All non-essential retailers and service providers have had to remain closed to the public since March 23, and although restrictions have gradually been lifting, some businesses won’t be allowed to reopen until at least July 4.

The picture is grim worldwide, however, and many countries face ballooning government debt as they seek to offset the economic effects of the pandemic.

The OECD expects the world economy to contract by 6 per cent this year, with all countries suffering a deep recession.

The recession could leave deeper scars than any peacetime recession in the past 100 years, the OECD said, echoing previous comments made by the UK’s chancellor Rishi Sunak.

Laurence Boone, chief economist of the OECD, says the economic impact of coronavirus on unemployment, corporate bankruptcy and adjustments to normal life forced by social distancing would be large and would prevent a normal economic recovery from recession.

“Most people see a V-shaped recovery, but we think it’s going to stop half way,” she said. “By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments.”

There are more than 8million people currently on the UK government’s furlough scheme who are unable to work, although this closes to new applicants today.

Meanwhile, the number of people on unemployment benefits has risen by 2.1million.

Shadow chancellor Anneliese Dodds said: “Today’s evidence from the OECD is deeply worrying, showing the UK was particularly exposed when the coronavirus crisis hit.

“The government’s failure to get on top of the health crisis, delay going into lockdown and chaotic mismanagement of the exit from lockdown are making the economic impact of this crisis worse.”