MNI POLICY: UK OBR Sees Net Borrowing At 16% GDP In 2020-21

--OBR Scenarios Highlight Uncertainty Around Covid-19 Impact

--Upside Scenario Sees No Scarring; Recovered By Q1 2021

--Downside Scenario Only Sees Econ At Pre-Crisis Peak in 2024

By David Robinson

     LONDON (MNI) - UK borrowing as a share of GDP could hit its highest level

for at least 300 years in 2020-21 and economic output only regain its pre-virus

peak by end 2022, according to the central scenario in forecasts published by

the Office for Budget Responsibility on Tuesday.

     Public sector net borrowing rises from just 2.6% of GDP in the 2019-20

fiscal year to 16.4% in 2020-21, the most in at least three centuries, before

falling back to 7.0% in 2021-22, according to the central scenario. Net public

debt rises to 104.1% of GDP in 2020-21 and 106.1% in 2023-24.

     In an upside scenario also published by the official fiscal forecaster,

Covid-19 leaves no economic scarring and GDP regains at its pre-crisis peak in

the first quarter of next year. But the worst case scenario foresaw GDP below

pre-pandemic levels until Q3 2024.

     "The economy has now been subject to two 'once-in-a-lifetime' shocks in

just over a decade. The budget deficit peaked at around 10% of GDP after the

financial crisis and may well top 15% this year, whereas no previous post-war

recession had even pushed it as high as 7% of GDP," the OBR said.

     Economies may now be more prone to very large shocks than previously

thought, it observed, adding that the government should plan ahead to stay as

the insurer of last resort.

     The OBR's PSNB forecast for 2020-21 was GBP267 billion higher than its

March estimate, with GBP142 billion of this coming from the fiscal policy

response and GBP125 billion from the hit to revenues from the lockdown. The OBR

envisages the Bank of England's Term Funding Scheme, which provides cheap four-

and six-year funding to banks, adding GBP150 billion to public sector net debt

in the short to-medium term.

     The OBR's figures do not include fiscal measures announced by Chancellor of

the Exchequer Rishi Sunak in July.

     They assumed that 10-20% of furloughed workers would not return to their

jobs once the Coronavirus Job Retention Scheme ends in October, pushing the

unemployment rate up to a peak of 10% in a benign scenario and 13% in the

downside scenario.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

[TOPICS: M$B$$$,M$E$$$,M$$BE$,MFB$$$,MGB$$$]