Thread by @OBR_UK

The global economic downturn brought about by the pandemic has been the worst since the Great Depression of the 1930s. World GDP fell by 3.3% and almost 90% of economies experienced a decline in output in 2020.

#OBRfiscalrisks

The UK experienced one of the deepest recessions among advanced economies, with output falling almost 10% in 2020. This was due to being relatively hard hit by the virus, spending more time under stricter restrictions, and our large share of social consumption in output.

However, the economy also proved to be surprisingly adaptable and resilient as the pandemic unfolded, with each successive lockdown taking less off output.

#OBRfiscalrisks

This economic resilience was thanks in part to a fiscal policy response unprecedented in scale and scope in peacetime. According to IMF, the UK’s rescue package amounted to £354 billion in total and was the third largest among 35 advanced economies after the US & New Zealand.

The UK pandemic rescue package was also relatively skewed toward health expenditure, reflecting the fact that we entered the pandemic with relatively low levels of spare capacity in our health system.

#OBRfiscalrisks

Potential unfunded legacy costs of the pandemic for public services pose a key risk to the fiscal outlook. Considering just selected pressures in three key areas, the Government could face spending pressures of around £10 billion a year on average in the next three years.

What about the lasting impact on the economy?

Evidence on the degree of economic scarring has been mixed and some forecasters have raised their medium-term growth estimates, but most fall within a fairly narrow range. We’ll revisit our assumptions at the Autumn Budget.

Between now and Autumn Budget we’ll continue to monitor the data, including what happens to the 2.6 million people still partially or fully furloughed from their jobs.

#OBRfiscalrisks

Read more in Chapter 2 of the #OBRfiscalrisks report 📗

obr.uk/frr/fiscal-ris…