This document summarizes a presentation on the economic impact of the COVID-19 pandemic. It discusses three potential scenarios for the duration of the outbreak lasting 3, 6, or 12 months and their implications on the UK economy and public finances. It finds that GDP could contract by 10-24% in 2020, the largest annual fall in 300 years. Public sector borrowing is projected to rise to peacetime highs, with public debt peaking at between 100-150% of GDP. Several policy challenges are outlined, including keeping people and businesses active through job support programs, financing large fiscal deficits, and restoring long-term fiscal sustainability after the outbreak ends.

1. The corona crisis
The economic impact of COVID-19
Adair Turner
Senior Fellow, Institute for New
Economic Thinking
Stephanie Flanders
Head of Bloomberg Economics
Richard Hughes
Research Associate, Resolution
Foundation
11:00am – 12:00pm, 16 April 2020
LIVE
@resfoundation #coronacrisis
Chair: Torsten Bell, Chief Executive, Resolution Foundation

2. #coronacrisis April 20@resfoundation
The corona crisis
The economic impact of COVID-19
Adair Turner, Senior Fellow at the Institute for New Economic Thinking
and Former Chairman of the FSA
Stephanie Flanders, Head of Bloomberg Economics
Richard Hughes, Research Associate, Resolution Foundation
Chair: Torsten Bell, Chief Executive, Resolution Foundation

3. 3
Doing more of what it takes
Next steps in the economic response to coronavirus
Authors:
@resfoundation
Richard Hughes Jack Leslie
Charlie McCurdy Cara Pacitti
James Smith Dan Tomlinson
The report considers:
1. Three scenarios for the duration of
coronavirus outbreak: 3, 6 & 12 months
2. Their implications on the UK economy and
public finances
3. How to manage tensions between public
health, economic, and fiscal objectives

4. 4
Annual real GDP growth – outturn, pre-coronavirus forecast and three scenarios: UK
Source: RF analysis of OBR.
@resfoundation
GDP contracts by 10 to 24% in 2020 - the largest annual fall in 300 years

5. 5
Economic and policy impacts on public sector net borrowing, as a proportion of GDP: UK, 2020-21
Notes: ‘Other policy’ includes all other policy measures impacting borrowing other than those named specifically.
Source: RF analysis of OBR, March 2020 Economic and Fiscal Outlook, March 2020; and sources for economic and policy costings for scenarios given above.
@resfoundation
Economic slump & fiscal policy drive borrowing to peacetime highs

6. 6
Public sector net debt, as a proportion of GDP: pre-coronavirus forecast and three scenarios: UK
Source: RF analysis of OBR, Economic and Fiscal Outlook, March 2020; and sources for economic and policy costings for scenarios given above.
@resfoundation
Public sector net debt peaks at between 100 and 150% of GDP

7. 7
Unemployment & job retention scheme (JRS) participants
Source: RF analysis of OBR.
@resfoundation
Policy challenge # 1: Keeping people & firms safely active
•• Job Retention Scheme should
provide partial salary support
for safe part-time work.
• Active labour market policies
needed to prevent scarring
effect of unemployment
• Loans should be partly written
off for firms which rehire their
workforce post outbreak
• Collateral should be retained
for firms who repay loans but
lay off workers

8. 8
Public sector net borrowing, % of GDP
Source: RF analysis of OBR, Economic and Fiscal Outlook, March
2020; and sources for economic and policy costings for
scenarios given above.
@resfoundation
Policy challenge # 2: Financing a yawning fiscal deficit this year
• Government borrowing set to
reach levels last seen during
two world wars
• Traditional creditors will face
their own liquidity problems
• Bank of England can provide
cash-flow relief
• Monetary financing needs to
be temporary, transparent and
by mutual agreement
• Government needs to return
to market financing ASAP

9. 9
Public sector debt interest as % of revenue
Source: RF analysis of OBR, various; Bank of England
@resfoundation
Policy challenge # 3: Restoring fiscal sustainability post outbreak
•• Debt interest burden looks
surprisingly affordable in all 3
scenarios
• Debt >100% of GDP leaves
public finances exposed to
future rate/inflation surprises
• Government should target
current balance & improving
net worth post outbreak
• And help deliver it via tax
surcharge on higher earners
who worked through outbreak

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