U.K. Economy Could Shrink 10% in First Half, Says Bloomberg Economics

(Bloomberg) --

The U.K. economy will contract at least 10% in the first half of the year as the fallout from the coronavirus hammers output, according to Bloomberg Economics’ estimates.

In a report released Monday, senior U.K. economist Dan Hanson said support provided by the Bank of England and the Treasury should prompt a turnaround in the second half of the year if the outbreak is contained by the summer. He sees the government borrowing an extra 95 billion pounds ($110 billion) this year to combat the virus, including 17.5 billion pounds for a wage subsidy program announced last week.

The forecast assumes the government imposing a four-week lockdown in April to contain the spread of the virus.

“The duration of containment measures is the biggest uncertainty in our forecast,” Hanson said. “In a more severe scenario, which includes a six week lockdown, that number is closer to 14%. Clearly, if measures drag on into the second half, the costs will be huge.”

Hanson sees gross domestic product shrinking nearly 9% in the second quarter alone. That would make the April-June period the worst quarterly performance since 1921, according to the Bank of England data.

Under the base-case scenario, the economy will contract 2.7% in 2020, compared with a forecast for 1% growth before the crisis.

“The difficulty getting money to the right people and companies means, even after a sharp rebound, some demand weakness could linger in the second half,” Hanson said.

©2020 Bloomberg L.P.