"34% Lower GDP every day the Shock Continues": UK GDP Forecast from Bank of America

- Latest coronacrisis economic forecasts
- 34% of workers report stopping work
- 4% slump in UK GDP forecast for 2020
- Unemployment rate to hit 7% say Cebr

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Bank of America Merrill Lynch (BofA Global Research) have updated their proprietary consumer survey to take advantage of its real time nature and gauge the hit to the UK economy of the unprecedented lockdown, which the Cebr says could result in a 15% slump in quarterly GDP.

BofA Global Research report a third of respondents to their survey say they have stopped working in response to Coronavirus, implying a significant hit to GDP is underway.

The survey reveals that by 30 March 34% of people reported stopping work in response to Coronavirus (either sick, furloughed, laid off or company closed).

"If those respondents have average productivity then simplistically our survey suggests 34% lower GDP every day the shock continues, or c11% lower quarterly GDP for every month it continues. These calculations are simplistic but suggest a very large fall in GDP," says Robert Wood, UK Economist at BofA Global Research.

The BofA consumer confidence indicator fell 15 points in the 10 days to 23 March, however the freewill appears to have been arrested by government intervention as there was a relatively minor 2 points fall recorded in the following 8 days.

The free fall in confidence was apparently arrested after the government ramped up its fiscal assistance and guaranteed to pay 80% of workers' salaries up to £2.5K.

The UK economy has suffered a significant economic hit after the government implemented measures to slow the spread of the coronavirus, culminating in a nationwide lockdown ten days ago.

There is little reliable data covering this period, which makes the results of the BofA Global Research survey valuable to economists.

The Centre for Economics and Business Research (Cebr) this week said they expect the economy to have contracted marginally in the first quarter of the year, by 0.5% QoQ.

This, however, is expected to be followed by a much steeper contraction of 15% in GDP in the second quarter as business closures take their toll (the previous largest quarterly fall in GDP from the current records which only go back to 1997 was 2.2% in Q4 2008

Over 2020 as a whole they expect GDP to be 4% lower than in 2019.

The Cebr supply independent economic forecasting and analysis to hundreds of private firms and public organisations.

Their central assumption is that restrictions on businesses and the wider populations will be loosened by the third quarter as testing becomes more widely available, helping to identify and isolate infection hotspots more efficiently.

"We also expect the government to introduce measures to kick start consumer spending as the economy returns to work, possibly a temporary VAT cut. We also are expecting measures to encourage business investment which otherwise will take till after 2030 to get back to its previous peak," say the Cabr in a statement detailing their latest coronacrisis projections.

Such assistance is expected to lead to a sharp bounce back in the third and fourth quarter of the year.

On the assumption that further government measures are applied to kickstart consumer spending in the second half of 2020, they expect GDP growth to recover to 3.5% in 2021 and 2.5% in 2022.

The Cebr forecast the unemployment rate to jump sharply to reach 7% in the third quarter of 2020, despite government measures to slow the rise.

House prices are likely to fall sharply with their predictions showing a drop of 13% in the year to the first quarter of 2021. By 2022 despite the economic recovery their forecasts show house prices 15% down from their peak.

The cost of the government's support to the economy is huge.

Government borrowing is forecast to reach £180 billion (7% of GDP) in the current 2020/21 financial year before falling back to £120 billion (5% of GDP) in 2021/22.

The debt to GDP ratio is likely to reach 100% of GDP in 2021 and this will not include loans to companies that are eventually likely to have to be written off.