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Unemployment could TREBLE this year hitting 3million as economy faces worst crash for 300 years, OBR predicts

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UNEMPLOYMENT in the UK could TREBLE this year hitting 3million and GDP could fall by 14.3 per cent, the Office for Budget Responsibility (OBR) has predicted.

The research released today shows the worst-case scenario following the impact of the coronavirus crisis on the economy.

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Unemployment could hit millions of workers as a result of the coronavirus crisis, predicts the OBR

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Unemployment could hit millions of workers as a result of the coronavirus crisis, predicts the OBR

In its latest financial report, the OBR said that the UK economy is on track for the “largest decline in annual GDP for 300 years”.

Even in its most optimistic projection, output is set to fall by 10.6 per cent this year.

In the most damaging outcome, it wouldn’t see GDP recover to pre-crisis levels until the third quarter of 2024.

It comes on the same day that the Office for National Statistics (ONS) reported that the economy grew by 1.8 per cent in May but warned it hadn’t recovered from record falls in March and April.

The OBR predicted that the UK's output will drop dramatically as a result of the coronavirus crisis

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The OBR predicted that the UK’s output will drop dramatically as a result of the coronavirus crisis

In the OBR’s worst-case, unemployment could rise from 1.3million in 2019 to 3.1million at the end of 2020, peaking at 13 per cent in the fourth quarter of the year.

It will continue to rise to 4million in 2021 before falling to 2.8million by 2022.

The research only looks at scenarios for the next four years, and in the worst-case unemployment still won’t reach pre-Covid-19 levels by 2024, settling at 2.2million.

The group also pointed out that the potential outcomes are not official predictions and were made ahead of the Chancellor’s mini-Budget last week.

But even in the most promising case, unemployment will more than double to 2.7million this year.

So far, 600,000 Brits have already lost their jobs as a result of lockdown with the Office for National Statistics already reporting a 2 per cent fall in the number of paid employees since March 23.

The OBR said that the true number of job losses depends on what companies do when the furlough scheme ends in October.

As of June 28, there were 9.3million workers receiving 80 per cent of their wages from the government.

Employees face the first wave of redundancies ahead of changes to the Coronavirus Jobs Retention Scheme (CJRS) in August, which sees employers chip in to pay for National Insurance and pension contributions for furloughed staff.

What this means for your personal finances

GROSS domestic product (GDP) is one of the main indicators used to measure the performance of a country’s economy.

When GDP goes up, the economy is generally thought to be doing well although today’s figures aren’t as strong as hoped.

Negative growth often brings with it falling incomes, job cuts and lower consumption.

The Bank of England (BoE) uses GDP as one of the key indicators when it sets the base interest rate.

This decides how much it will charge banks to lend them money, and is a way to try to control inflation and the economy.

So, for example, if prices are rising too fast, the BoE could increase that rate to try to slow the economy down. But it might hold off if GDP growth is slow.

The BoE cut interest rates twice in March due to coronavirus.

Base rate cuts means mortgage borrowers now typically benefit from lower rates, but at the other end of the scale savers earn less on their savings.

To measure GDP, the Office for National Statistics (ONS) collects data from thousands of UK companies.

Andrew Wishart, UK economist at Capital Economics, told The Sun the full impact of the crisis on jobs and businesses will only become apparent once the government starts to withdraw its support.

The research firm expects unemployment to double from 4 per cent to 8 per cent, with the same number of companies likely to go bust.

From September, the government’s contribution will fall to 70 per cent of wages up to a cap of £2,187.50 a month.

New claims for Universal Credit soared at the start of lockdown, with the Department for Work and Pensions processing 3.2million new applications.

The number of people applying for welfare because they are unemployed jumped by a million in April and another 529,000 in May.

The OBR partly blamed the continued rate of unemployment on the difficulty of finding work during lockdown combined with a sharp fall in the number of vacancies.

But it added as lockdown eases, it expects a number of workers will be encouraged to start actively looking for jobs and to come off benefits.

And while it acknowledges that the government’s short-term plan remains focusing on controlling the virus and reviving the economy, tax hikes are likely in the future.

It said: “But at some point, given the structural fiscal damage implied by our central and downside scenarios, the longer-term pressures on spending, and the range of fiscal risks we identify, it seems likely that there will be a need to raise tax revenues and/or reduce spending (as a share of national income) to put the public finances on a sustainable path.”

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