Britain is on course to borrow a record £450bn this year after Boris Johnson plunged the country back into a national lockdown, economists have warned.
The latest Covid shutdown looks set to shatter the Office for Budget Responsibility’s £394bn borrowing forecast for the current financial year, made just six weeks ago. It will raise fresh fears that future generations will be saddled with a massive burden of state debt.
Analysts rushed to slash economic growth estimates and said the UK will be living with high deficits for years as the nation suffers a borrowing “hangover”. Beleaguered business chiefs called for even more support as Chancellor Rishi Sunak unveiled a new £4.5bhn package.
Philip Rush, chief economist at consultant Heteronomics, said: “Borrowing looks to be ballooning to about £450bn in 2020/21.
“Half a trillion is quite plausible if the Government steps in with new stimulus measures. I also expect a substantial upward revision in borrowing towards £250bn in 2021/22.”
The tens of billions of pounds in extra borrowing would drive the deficit to about 21pc of GDP this year – by far its highest level since the Second World War – as tax revenues collapse under the lockdown and the Government embarks on the biggest vaccination programme in history.
The rapid deterioration also puts more pressure on Mr Sunak to begin the task of repairing the damage when the immediate crisis is past – meaning he may be forced to hike taxes and slash spending. The Chancellor has committed to “sustainable” public finances.
Howard Archer, chief economic adviser at the EY Item Club, said a £450bn deficit was a “rising and genuine possibility”. He added: “I suspect the deficit could still be up around £100bn in five years’ time.”
The OBR predicts the deficit will fall to around £164bn next year, but Panmure Gordon chief economist Simon French warned that this forecast is now under threat.
He said: “The issue is whether that profile for the rest of the forecasting period is now realistic, because of course you get a hangover effect.”
Ruth Gregory at Capital Economics said the UK’s debt as a share of the economy – already at the highest level since the 1960s – is likely to remain elevated for years, piling pressure on future generations.
She said: “It will take some time for growth to bring that back down again, and that is if policy remains unchanged.”