Britain’s government will still be borrowing vast sums of money five years from now if the economy takes time to recover from the coronavirus fallout, new research published on Friday showed.
The Institute for Fiscal Studies think tank and US investment bank Citi said they thought it would take the economy “several years” to adjust to the pandemic, in contrast to scenarios from official forecasters showing a relatively swift rebound.
That would point to a budget deficit of around 130 billion pounds ($162 billion) – or 5% of GDP – in five years’ time, more than double the forecast published by the Office for Budget Responsibility (OBR) in March.
“Even so, with current low interest rates, additional borrowing now that boosts the economic recovery would still be worthwhile,” IFS economist Isabel Stockton said. “But once we are through the immediate crisis and the economy reaches a new normal, we will be left with elevated debt.”
Stockton added that a mix of tax rises and an acceptance that higher debt will need to be managed carefully seemed to be the most likely outcomes.
It estimated new borrowing in the current financial year could approach 300 billion pounds as normal tax revenues dry up.