UK economy could shrink by the most in 300 years in 2020

Separately, the International Monetary Fund said it expected Britain’s economy to shrink 6.5% in 2020, similar to other economies, before growing by 4.0% in 2021. But the outlook for Britain’s public finances is stark.

The OBR said the hit to tax revenues and the government’s huge spending plans meant the budget deficit could hit 273 billion pounds ($342 billion) in the 2020/21 tax year — five times its previous estimate.

That would be equivalent to 14% of gross domestic product, higher than the 10% level hit after the global financial crisis that began in 2007. Britain had gradually lowered the deficit to about 2%, mainly through a decade of spending cuts for many public services.

The Resolution Foundation, a think-tank, said it was plausible that the economy could suffer a more sustained hit than outlined by the OBR.

The annual budget deficit – as opposed to the debt accrued – should fall back to normal once the crisis is over, he added.

Before the government shut down the economy from March 20 to slow the spread of the coronavirus, the OBR had forecast debt would be 77% of GDP in 2020/21.