UK to take biggest GDP hit from coronavirus impact - OECD

The coronavirus pandemic has caused the deepest global recession in a century, with the UK economy likely to suffer the worst damage among developed nations, the Organisation for Economic Cooperation and Development said on Wednesday.

It also said Britain should consider an extension of its trade terms with the EU beyond the Brexit transition deadline of December 2020 to reduce uncertainty given the economic disruption caused by Covid-19. The UK economy was already stagnating due to drawn out negotiations over its future relationship with the bloc after voting to leave in a 2016 referendum.

As restrictions begin to ease, the path to global economic recovery remained “highly uncertain and vulnerable to a second wave of infections”, the OECD warned in a set of gloomy forecasts.

Britain was set for a, 11.5% slump in national income during 2020, compared with a fall of 6.6% in Germany, 11.1% in Spain, 11.3% in Italy and France’s 11.4%.

With little prospect of a vaccine becoming widely available this year, and “faced with unprecedented uncertainty”, the OECD said it had taken the unusual step of presenting two equally likely scenarios – one where the virus was brought under control, and one in which a second global outbreak hit before the end of 2020.

Under the second scenario, known as the 'double hit', UK GDP was projected to fall by 14% in 2020.

If the world avoided a second wave, the global economy was likely to contract by 12% in the first half of the year and by the end of 2021 it would still be below the level it reached at the start of 2020, the OECD said.

OECD chief economist Laurence Boone said the scenarios “help frame the field of possibilities and sharpen policies to walk such uncharted grounds”.

“Both scenarios are sobering, as economic activity does not and cannot return to normal under these circumstances. By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments,” she said.

The OECD noted the UK's measures to keep minimise the damage caused by the pandemic, such as £330bn in business support, and called for the measures should be kept in place “as long as they are needed and fiscal policy should remain supportive”.

“Higher unemployment benefits should be extended beyond the fiscal year 2020-21 to help support demand during the recovery.”

“Given the economic disruption caused by Covid-19, a temporary extension of existing trading relationships with the EU beyond the end of 2020 would help reduce uncertainty. Public investment supporting the recovery should underpin progress in digitalisation, sustainability and inclusiveness.”