The OECD estimate that United Kingdom GDP will fall by 14% in 2020 if there is a second virus outbreak later in the year (the double-hit scenario).
Even if the Covid-19 crisis eases considerably from this point and the economy opens up UK GDP falls by 11.5% this year. That represents an awful lot of bust businesses and unemployed people. Many will cut back on spending.
“In the double-hit scenario, the unemployment rate is set to more than double to 10% and remain elevated throughout 2021, despite widespread use of furloughing.”
In the double hit scenario consumers buy 18.5% less stuff this year than in 2019, and then increase consumption 5.2% in 2021. Thus customer-facing businesses, and many others, will suffer a protracted loss of income and balance sheets will deteriorate.
Business investment will fall by over 23% this year and only move up by 4.8% next year. Thus, those companies selling capital items, such as plant and machinery are going to have a challenging couple of years.
“Downside risks come from the risk of longer-term scarring of the economy due to higher unemployment and business closures. There is considerable uncertainty about how prolonged restrictions on activity or lower than expected demand would affect financial stability.
A failure to provide credit to capital-w
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