The UK is set to suffer more economic pain from the coronavirus crisis than any other leading economy apart from Argentina, the OECD said on Tuesday, highlighting the spread of the virus and deep downturn across Britain.
In its twice-yearly economic outlook, the Paris-based international organisation said that the world economy would on average regain the lost output from the Covid-19 crisis by the end of 2021, but the UK would be far behind the pack.
Towards the end of next year, Britain’s economy would still be 6.4 per cent smaller than it was in the fourth quarter of 2019, the OECD predicted. This was better than Argentina’s projected loss of 7.9 per cent, but lower than all other leading economies.
China’s economy was on course to be 9.7 per cent larger than it was at the end of 2019, with gains also seen in South Korea and Indonesia. The US was set to have lost only 0.1 per cent and the eurozone 3 per cent.
The UK’s problem, the OECD said, was allowing the virus to spread extensively in the first and second wave along with very extensive lockdowns to control the extent of the disease. The economic shock was “particularly sudden”, the organisation said.
Output was now stalling at between 8 and 10 per cent below where it was in late 2019, the OECD said, highlighting the difficulty the UK would face in recovering quickly to the levels of economic performance, unemployment and living standards before the crisis.
In a warning to Conservative party rebels threatening to vote against continued restrictions aimed at reducing the prevalence of Covid-19, the OECD said the economic outlook would be worse if the virus spread further.
“A deterioration could prompt additional restrictions on economic activity and lead to a slower recovery,” it warned, although it held out the prospect of a better economic prognosis if vaccines could be distributed quickly. “New treatment methods or earlier than assumed distribution of a vaccine are a clear upside risk,” it said.
The OECD’s forecasts, suggesting a recovery in private consumption in 2021 but less than in other comparable economies, were based on the assumption that the UK government secures a free trade agreement with the EU before the end of the year.
“The failure to conclude a trade deal with the European Union by the end of 2020 would entail serious additional economic disturbances in the short term and have a strongly negative effect on trade, productivity and jobs in the longer term,” the OECD said, noting that the country was at “a critical juncture”.
The OECD held out hope that if vaccines and effective Covid-19 treatments became available, there would be a stronger rebound in UK economic performance in 2021 and 2022. It urged the government and the Bank of England to maintain economic support until the recovery is “firmly under way”.
Although the UK government had spent more than most others in supporting households and companies through the economic lockdowns, the OECD’s chief economist, Laurence Boone, noted that such generosity was not generally associated with better outcomes internationally.
“A striking feature of the outlook is the absence of correlation between the extent of fiscal support and the resulting economic performance,” she said, adding that this suggested, “not all measures have been used wisely”.