Moody's says UK to take worst hit of developed economies
By Sean Farrell
Date: Friday 10 Jul 2020
(Sharecast News) - The UK's economy will shrink by more than 10% this year - the worst impact among major economies from the Covid-19 crisis, Moody's ratings agency predicted.
Britain's GDP will contract by 10.1% in 2020 and will recover gradually next year helped by measures announced by Chancellor Rishi Sunak, Moody's said. But the agency said government support would cause government debt to surge.
Sunak announced £30bn of extra spending to support jobs on Wednesday and almost £33bn more on health and other public services.
His measures included a £1,000 reward for companies taking back furloughed employees to replace support of up to £2,500 a month for each employee paid now. Some senior economists have warned the measure risks a rapid rise in unemployment because the bonus, to be paid in January, is not enough for employers to retain workers.
Moody's said: "The extensive policy response provides support to the economy against the continuing challenges posed by the coronavirus-induced shock ... Our forecast estimates a sharper peak-to-trough contraction for the UK than for any other G20 economy."
The UK's public debt as a ratio of GDP will rise by 24 percentage points or more compared with 2019, Moody's said. "The autumn budget will be key to providing greater clarity on the government's medium-term fiscal objectives and the future path of government indebtedness, Moody's said.
Moody's said it expected the UK economy to grow by 7.1% in 2021 based on a gradual recovery in 2020 based on recent more positive data. Some economists fear a second wave of Covid-19 will hit growth again later in 2020.
The crisis will have a long-term impact on the UK labour market and unemployment will rise later in the year to average 8% across 2020, Moody's predicted. Sunak's job retention bonus scheme is meant to prevent a sudden surge in redundancies but it relies on underlying demand for labour picking up by the start of 2021, Moody's said.
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