The economy is likely to see a “slower recovery” from coronavirus than initially anticipated, the Office for Budget Responsibility has admitted.
Rowing back on its original suggestion of a ‘V-shaped’ model, the body’s chairman Robert Chote said it was likely the economy would not be “bouncing back”.
The OBR had previously suggested that the UK’s gross domestic product would drop by 35 per cent before returning to similar levels seen before the outbreak in 2021.
一本道理不卡一二三区Mr Chote said the economic challenges posed by the virus would “certainly” lead to higher borrowing, and warned of the “scarring” effect on the economy.
He said: "The fact that the level of debt goes up on its own doesn't necessarily mean you have to have the sort of austerity that followed the financial crisis.
一本道理不卡一二三区"Much more important to that is whether you have this effect of scarring of the economy. If the economy is permanently smaller then you get permanently less tax revenue.”
The chief executive of the Resolution Foundation Torsten Bell said that it was important to deal with the economic impact of coronavirus “in the right order”.
一本道理不卡一二三区He said: “The Government’s first priority once the virus is under control is to secure a sustained economic recovery, a key part of which should be tackling what may be the highest unemployment in a quarter of a century. It is critical we avoid scarring the careers of those unlucky enough to have born the brunt of the economic impact of the corona crisis.
“Only once the recovery has been secured should the Government turn to the question of balancing the books.
一本道理不卡一二三区“While there will be tough decisions to take, a repeat of the austerity of the 2010s is neither desirable or feasible.
“Britain has the space to ensure we get the substance and timing of those decisions right. While the UK will emerge from the crisis with higher debt levels, record low interest rates mean that the cost of that debt will remain low for some time to come.”
It comes after the Telegraph revealed an internal Treasury document had forecast the coronavirus crisis would cost the Exchequer almost £300 billion this year.
The blueprint calculated that the "base case scenario" forecasts that Britain will have a £337 billion budget deficit this year.
The best-case "V-shaped" scenario - in which the economy falls sharply but recovers equally quickly – was described as "optimistic" and would lead to a £209 billion deficit this year.
一本道理不卡一二三区Proposed ways to tackle the debt include an increase in income tax and an end of the triple lock on state pension increases.
一本道理不卡一二三区The Treasury will publish its April data on Government borrowing on Friday.
The OBR’s Mr Chote said a return to austerity after the coronavirus crisis is not yet a "done deal".
The economist told the BBC’s Andrew Marr Show:一本道理不卡一二三区 "The fact that the level of debt goes up on its own, doesn't necessarily mean that you have to have a sort of austerity that followed the financial crisis."
He noted that borrowing is "relatively cheap" at the moment, and said "political choices" may lead the Government to increase spending on health and social care.
一本道理不卡一二三区Mr Chote said: “There will be political choices coming out of this. Do we want to spend a higher proportion of national income than we went in for example on health and social care?
一本道理不卡一二三区"All of these things together will shape the fiscal challenge for the Government coming out of this. A post financial crisis-style extended period of austerity is not a done deal."
一本道理不卡一二三区Outlining factors critical to the economic health of the UK, he highlighted the pace on which public health restrictions are relaxed, as well as people's behaviour.
He asked: "If you allow people back into the workplace, back into shops, back into restaurants, will they actually go? Will they feel too nervous?"