Britain’s economy will suffer the biggest plunge in output for more than 300 years and government borrowing will balloon to a peacetime high of £394 billion, the fiscal watchdog has warned.
The Office for Budget Responsibility (OBR) said £218 billion of government support to help the economy through the pandemic will see borrowing soar to the equivalent of 19% of gross domestic product (GDP) in 2020-21.
The borrowing marks the highest level in Britain’s peacetime history and a significant hike on the £372.2 billion forecast by the OBR only three months ago.
But Chancellor Rishi Sunak warned the economic damage is likely to be lasting, with the economy around 3% smaller in 2025 than expected in the March Budget.
The OBR said the second national lockdown would dent GDP in November and following months, but the size of the hit would depend on the restrictions that follow.
It said the impact would be less than in the first lockdown, with the fall in GDP expected to be three-fifths that seen during the first lockdown.
In its economic and fiscal outlook, it said: “A resurgence of infections and subsequent tightening of public health restrictions in different parts of the UK took the wind out of the recovery going into fourth quarter.”
The Chancellor announced that NHS doctors and nurses will receive a pay rise, but pay rises in the rest of the public sector will be “paused” next year.
GMB, Britain’s general union, says the Chancellor’s Comprehensive Spending Review today delivers a real terms pay cut for the workers who carried the country through the pandemic
Warren Kenny, GMB Acting General Secretary, said: “There won’t be a ‘pause’ in how much rent, mortgages, food and transport costs.
“The Chancellor couldn’t even bring himself to say the words ‘pay freeze’.
“He’s delivered a real terms cut for the very people who have carried us through this pandemic at great personal expense.
“The same workers whose wages still hadn’t recovered from a decade of so called ‘pay restraint’.
“Punishing public sector workers doesn’t help those in the private sector and it doesn’t help the economy. By trying to divide and conquer he’s letting every worker down.”