OECD: UK outlook 'exceptionally uncertain' on Covid-19 and Brexit

Prime Minister Boris Johnson (left) and Chancellor of the Exchequer Rishi Sunak (right) leave 10 Downing Street London, ahead of a Cabinet meeting at the Foreign and Commonwealth Office.

The British economy is facing a slow recovery from the Covid-19 economic storm which will keep unemployment at an elevated level, but low borrowing costs mean it could inject more stimulus if required, according to the OECD. 

Unemployment will rise to over 7% in 2021, and will remain at an elevated level for "several years", the Organisation for Economic Co-operation and Development said in its latest economic survey.

The central forecasts — which assume the UK will strike a free trade Brexit agreement with the EU in the coming weeks, thus avoiding the disruption that a no-deal Brexit would entail — see British GDP contracting by just over 10% this year. And economic activity remains below pre-Covid levels, despite a 9% GDP growth in 2021. 

A second wave of the pandemic this autumn would mean a sharper fall in GDP and unemployment rising to 10% this year and in 2021.

The OECD forecasts for the UK will be closely watched by Irish exporting companies and Government officials because of the importance of the British economy for many agri-food companies. 

In Tuesday's budget, the Government forecast average unemployment here of 10.3% next year, which includes the many thousands of people availing of the pandemic unemployment payment. That compares with September's 14.7% unemployment rate. 

For Britain, "in the double-hit scenario, a second wave of the virus and new restrictions would put an abrupt halt to the pickup in economic growth in the fourth quarter this year, leading to a fall in GDP by 14% in 2020", according to the OECD. 

"Growth is expected to recover to 5% in 2021 as confinement measures ease," the organisation said. 

However, the OECD said low interest rates mean the British government can spend on more stimulus if required. 

“The combination of Covid-19 and the exit from the EU single market makes the UK outlook exceptionally uncertain," said OECD chief economist Laurence Boone.

"Actions taken to address the pandemic and decisions made on future trading relationships will have a lasting impact on the UK’s economic trajectory for years to come, so they should be in line with long-term objectives,” he said. 

Speaking to an online event hosted by the Irish Exporters Association, Simon Coveney, the foreign affairs minister, urged Irish companies to do all they could to prepare for checks on goods crossing the Irish Sea.

“With less than three months to go until the end of the transition period, it is essential that all stakeholders, particularly in the business community, urgently revisit their Brexit readiness plans," Mr Coveney said.

"Any business that moves goods from, to, or through Great Britain will be subject to a range of customs formalities, SPS checks, and other regulatory requirements that do not apply to such trade today," he said. "The ongoing negotiations on the future relationship will not remove the need for these formalities."

After falling sharply, sterling recovered to trade at 90.25p against the euro. A UK self-imposed deadline for the Brexit deal talks will pass this week as the talks extend into next week.