The UK faces a triple threat of “potentially catastrophic” risks to its economy in the years to come, according to the Office for Budget Responsibility (OBR).
The UK budget watchdog has declared the coronavirus, the climate crisis and an ever-growing mountain of debt as it recovers from its “biggest peacetime economic and fiscal shock in three centuries.”
He also said that developed economies like the UK could be increasingly exposed to such risks in the future, noting that the Covid-19 pandemic had hit just over a decade after the financial crash. from 2008.
In its latest fiscal risk report, the OBR warned ministers face a potential £ 10bn black hole over the next three years due to the disease. “Unfunded legacy costs” in health, education and transport pose a significant risk to the outlook for public spending, they said.
Experts have further warned that delayed action to curb greenhouse gas emissions could hurt the economy and add to the UK’s huge debt, currently over £ 2 trillion.
In the report, the OBR said that a delay in global action to reduce carbon emissions could lead to an additional 3% impact on gross domestic product (GDP) and that debt would be 23% higher. of GDP to that of early action. is taken by 2050-2051 – the UK’s goal date for net-zero.
But another scenario – based on early action in the UK and around the world to reach net zero – would see the impact on the UK’s debt mountain be less severe than that of the coronavirus, adding just 21% , or £ 469 billion, from GDP to net debt by 2050-2051.
In a stern warning about the fiscal threat posed by the climate crisis, he said if there was no action to cut global emissions, Britain’s debt would skyrocket to 289% of GDP by the end. of the century.
The report showed the OBR still expected the UK economy to return to pre-pandemic levels by the middle of next year, but reiterated that it would likely suffer a permanent impact by 3%.
Its experts have warned that rising inflation and potential interest rate hikes to tackle the rising cost of living could add even more pressure on UK debt. Inflation and rising wage costs could also drag the government with a £ 3bn bill from its triple-lock state pension pledge.
Although the OBR did not update its economic or borrowing forecast in the report, it said the economy has proven to be “surprisingly adaptable and resilient to the shock of the coronavirus.”
After plunging 10% in 2020 – one of the deepest recessions in advanced economies – it has since started to recover quickly, helped by nearly £ 400 billion in central support.
This means the economy will recover in just over two years after the onset of the crisis, compared to the four and a half years it took to rebound from the 2008 financial crash, according to the OBR.
But he added a note of caution, suggesting that large-scale economic disruptions may become more frequent.
“The rapid onset of two major economic shocks is not necessarily a trend, but there is reason to believe that advanced economies may be increasingly exposed to significant and potentially catastrophic risks,” said OBR. .
Additional reporting by the Press Association
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This notice was published: 2021-07-06 16:29:55