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Author: Sacha Bright & Oliver Murphy
The Office for Budget Responsibility (OBR) issued a dire warning yesterday, suggesting Britain’s economy could shrink by 35% by spring in an assessment of the economic impact from coronavirus.
Chancellor Rishi Sunak said that a forecast by the tax and spending watchdog will have “serious implications” for the UK economy. The projection is based on the eventuality that the lockdown lasts for the predicted three months, followed by another three month period in which restrictions are partially lifted.
As well as predictions that unemployment could rise by 2 million, the OBR has warned that GDP could plummet by a third in the second quarter and by 13% for the whole of 2020. Suggesting that the hit to living standards could be worse than the initial shock to the 2008 financial crisis, the watchdog has said unemployment could hit 10% by the end of June.
The OBR’s predictions show that a three-month lockdown would push up the UK”s borrowing bill to an estimated £273bn this financial year, which would represent the largest deficit as a share of GDP since World War Two.
Speaking at Downing Street’s daily press conference, Rishi Sunak said: “Our planned economic response is protecting millions of jobs, businesses, self-employed people, charities, and households.”
He added: “The single most important thing we can do to protect the economy is to protect the health of our people.”
The International Monetary Fund has issued its own projection, warning that the virus would spark the UK’s deepest economic slump for a century.
The announcement comes as campaigners have called on the Treasury to include early-stage ventures in the Coronavirus Business Interruption Loan so they are able to survive the economic shock of Covid-19.
A number of groups, as well as NextFin, have united behind the Save our Startups campaign - an initiative designed to allow startups to access government loans to prevent entrepreneurs from going under. The Enterprise Investment Scheme Association calls on the government to increase the EIS and SEIS threshold to stimulate investment and thus protect the 672,890 startups which form a major part of the UK economy.
To prevent further job losses, NextFin has written an open letter to the Chancellor, urging the government to support small limited companies with a payout of £2500 per month amongst other measures.
Responding to the OBR's findings, Sacha Bright, CEO of NextFin said: “This is deeply worrying news, and it's clear that more action is needed to safeguard the economy.”
“If the government increased the SEIS and EIS, and provided 100% CBIL loan guarantees for P2P lenders, for example, this would mobilise private investor’s cash and save small startup businesses, thus preventing mass unemployment. It’s a no brainer.”
Disclaimer
To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional legal advice on any topic discussed.
Tagged: News
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