The OBR believes unemployment could hit 12% by the end of the year
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Unemployment could top 4 million by the end of the year, with 1.3 million people going straight from furlough into joblessness, according to the Office for Budget Responsibility.

The government’s economic forecaster has drawn up three scenarios in a 160-page fiscal sustainability report: a worst-case scenario, a central template and an upside scenario. In the central scenario, it predicts that unemployment will hit 4.1 million, or a rate of 12%, between October and the end of the year.

In the optimistic scenario, unemployment will hit 10%, and in the worst case it hits 13% in the first quarter of 2021. The last time the unemployment rate hit 12% was 1984, while the current jobless rate is 3.9%.

How quickly will the economy recover and how much ‘scarring’ will there be in the medium term? #OBRFSR2020 sets out three scenarios pic.twitter.com/VSYFKNyWL0

— Office for Budget Responsibility (@OBR_UK) July 14, 2020

The OBR’s predictions go against hopes of a ‘V’ shaped recovery, where the economy jumps back to life quickly as businesses reopen and people return to work.

Announcing the predictions yesterday, OBR chairman Robert Chote said the type of recovery would be dependent on four factors: the course of the virus and availability of vaccines and treatments; the speed and consistency with which the government can lift restrictions; how individuals and businesses respond to restrictions being lifted; and the effectiveness of any policies designed to protect businesses and sustain employment.

He said: “Looking ahead, the outlook for unemployment depends in large part on the proportion of furloughed staff who flow into unemployment rather than back into work.

“We have assumed 10, 15 and 20 per cent in the three scenarios. We also assume that the structural rate of unemployment rises by 1 percentage point in the central scenario and by 2 points in the downside one.”

He added that the economic outlook could have been “much worse without the measures the government has taken”, although the Coronavirus Job Retention Bonus announced by chancellor Rishi Sunak last week would add £50 billion to borrowing this year, on top of the £142 billion cost of furlough and other protection schemes.

Responding to the figures, Sunak said: “Today’s figures underline the scale of the challenge we face. I know people are worried about the security of their jobs and incomes. That’s why I set out our Plan for Jobs last week, following the PM’s new deal for Britain, to protect, support and create jobs as we safely reopen our economy.”

Paul Johnson, head of the Institute for Fiscal Studies, said the predictions were a “very good and sobering statement of risks we face as a result [of the pandemic]”.

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