OECD downgrades UK economic outlook ahead of Brexit deadline
The OECD has downgraded its outlook for the UK economy amid surging coronavirus cases and has warned of a hit from a no-deal Brexit.
In its latest economic outlook, the global economic organisation said it expected UK GDP to contract by 11.2 per cent this year compared to the 10.1 per cent forecasted in September. This is in large part due to a contraction in the fourth quarter amid renewed lockdown restrictions.
It also sharply downgraded its forecasts for growth next year to 4.2 per cent from 7.6 per cent in September.
The OECD warned of a short-term impact on the economy if the UK fails to reach a trade agreement with the EU.
“It would entail physical and financial disruptions of different magnitudes across sectors, with exports falling by more than 30 per cent in a few manufacturing sectors (notably the motor vehicle and transport, meat and textile sectors) and by almost 20 per cent in the financial and insurance sector,” it added.
It echoes the organisation’s warning just three months ago that the possibility of a no-deal Brexit means Britain faces “major downside risks”.
It was more optimistic about the global recovery, predicting GDP will return to pre-pandemic levels by the end of 2021.
After a sharp decline this year, global GDP is projected to rise by 4.2 per cent in 2021, and a further 3.75 per cent in 2022.
Unsurprisingly the OECD predicts the recovery will be uneven across countries which could lead to lasting changes in the world economy. Countries that have produced efficient vaccination campaigns and test and trace systems are likely to bounce back quicker.
“The recovery would be stronger if vaccines are rolled out fast, boosting confidence and lowering uncertainty,” the OECD said.
China will be the only country covered by the OECD to see any growth at all this year, at 1.8 per cent, unchanged from its September forecast.
The organisation has called on governments to continue their financial support, urging “exceptional” spending to “continue until the recovery gains momentum”.
It comes after the Chancellor used his spending review last month to impose a pay freeze on public sector workers outside the NHS and slash the overseas aid budget to tackle the record amount of borrowing this year.