The Institute for Fiscal Studies (IFS), working with Citi, has published a new “Green Budget” report, examining the damage done by the coronavirus emergency to the UK economy and public finances.
Although the future path of the economy remains unclear, it is expected that the UK economy will remain smaller in four years than it was before coronavirus emerged.
Unemployment may reach 8.5% by early 2021, almost double the current rate of 4.5%, with about 2.9m people out of work, the highest level since the early 1990s.
Inflation is expected to remain low for now, but there is a risk of inflationary pressures for some goods, especially those brought to the UK from overseas.
Supporting the economy will mean that the government will need to maintain spending at a high level in the short term, taking advantage of low interest rates to borrow, as necessary.
The escalation of sovereign debt will require tough decisions to be taken by government over the medium- to long-term and these will inevitably weigh heavily on citizens. IFS suggest tax increases worth £29 per household per week by the middle of the decade.
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