The UK’s budget watchdog has drastically revised its estimate of the cost of the coronavirus crisis as it predicts the biggest drop in GDP in 300 years.
According to the Office for Budget Responsibility, the government is set to spend £192bn fighting the pandemic – up from the previous estimate of £132.5bn last month.
This new figure includes both measures announced by the chancellor in June, which come to £142bn, and those announced in his Summer Economic Update last week, which the OBR predicts will cost the Treasury £50bn.
The new figures come as the Office for National Statistics revealed that the economy had shrunk by a fifth in the three months from March, but had seen a 1.8% uplift in May.
Setting out different scenarios for the post-Covid economy, the OBR suggested the economy could recover to its pre-virus peak by Q1 2021 in the best-case scenario, or Q3 2025 in the worst.
Even in its most optimistic rundown, the OBR said GDP would likely fall by 10.6% in 2020, the worst decline in 300 years.
But the watchdog warned that these predictions do not take into account the new measures outlined by Rishi Sunak last week, as they were announced too late to be incorporated into their forecasts.
It added that last Wednesday's announcements would have a “material effect” on the analysis in the short term, but would have less of an impact on medium-term predictions.
In other grim statistics, the OBR also suggests that 10-20% of employees furloughed under the Coronavirus Job Retention Scheme would lose their job once the scheme ended.
As a result, unemployment could hit 13% at the start of 2021 compared to just 3.9% at the same point the previous year.
The OBR is also warning Britain is on course for the highest peacetime rise in government borrowing on record.
Responding to the statistics, shadow chancellor Anneliese Dodds said it was too soon to withdraw the furlough scheme.
The Labour frontbencher said: “This OBR analysis is very worrying. Unless the government takes urgent action, the UK’s unemployment crisis is going to get much worse.
“The chancellor must now listen to calls from Labour, business and trade unions and make the Job Retention Scheme live up to its name. Instead of withdrawing support across the piece, he must target it to sectors where it’s needed most.”
The government has yet to comment on the report.
James Smith, research director at the Resolution Foundation think tank, said its findings "reiterate the scale of the hit to our economy and public finances from the pandemic".
He added: “With unemployment projected to match – or even surpass – its 1980s peak, the chancellor has taken a significant gamble in not setting out more support for demand and employment in the hardest-hit sectors of the economy.
"The risk of 1.3 million furloughed workers moving straight into unemployment should prompt the chancellor to consider further action on jobs.
“And whatever path our recovery takes, the chancellor faces the huge political challenge in future of setting out the tax rises that will be needed to get the public finances back on a sustainable footing.”