Hopes Britain’s economy will have a ‘V-shaped’ instant bounce-back from coronavirus are dashed

Any hope that the British economy would instantly bounce-back from the coronavirus pandemic have been dashed by the Treasury’s own assessment.

The internal report, which circulated among ministers last week, warned that the economy could take years to recover from the impact of the outbreak.

It made far more pessimistic reading than models issued earlier in the week by the Office for Budget Responsibility (OBR). 

The OBR had previously suggested that the economic recovery would take the form of a V-shape.

It indicated that GDP would drop by 35 per cent in the second quarter of the year but would bounce back next year to similar levels seen before the outbreak. 

But according to The Times, the Treasury’s own analysis has warned that there will be permanent damage to the economy as a result of the lockdown period. 

Officials are thought to have examined a variety of different scenarios but it appears that the situation will only worsen the longer it continues.

Speaking to the newspaper, one source said: ‘The Treasury’s analysis is far bleaker than the OBR’s. It’s not going to be a V-shape. 

‘It asks whether we can even get to a narrow U or could we be looking in the worst case at a W if there is a second lockdown.’ 

In the event of a U-shaped recovery the economy would take longer to rally.

Similarly a W-shaped recovery is likely to occur in the event of a second imposed lockdown before the virus is fully contained.  

It comes as Chancellor Rishi Sunak is facing mounting pressure to boost his business bailout so that the Government increases its guarantee on loans to struggling firms to 100 per cent.

The Treasury is set to announce a further £1.25billion package to support innovative firms hit as the coronavirus lockdown causes the economy to stutter to a halt.

It will include a £500million loans fund for high-growth companies and £750million in loans and grants for small firms focused on research and development.

But thousands of companies are already struggling to claim state aid under the Government’s existing £330billion of coronavirus schemes.

The lockdown is pushing many firms to the brink of collapse, with one report warning today that up to 11.7million people could be furloughed or left jobless in the three months to the end of June.

Smaller businesses especially have encountered huge obstacles when trying to obtain vital Government-backed loans under the Coronavirus Business Interruption Loans Scheme (CBILS).

These loans, handed out by high street banks, can give businesses up to £5million to keep them afloat. And to incentivise the lenders, the Government will take on 80 per cent of any losses they suffer.

But because banks will still have to bear 20 per cent of the risk, they have been asking for detailed financial information and forecasts which firms are simply unable to provide fast enough.

And for any businesses which were already struggling before the lockdown began, Government-backed loans are near impossible to come by.

MPs and City grandees have called on the Government to increase its guarantee on the loans to 100 per cent, as in Switzerland and Germany, to speed up the process.

Former Labour leader Ed Miliband said: ‘The Chancellor must move to a 100 per cent guarantee of loans for smaller businesses. In the coming days, businesses are facing critical decisions about their future.’

Meanwhile, a paper by think-tank the Resolution Foundation predicts that unemployment could hit 3.4million in the three months to the end of June with a further 8.3million workers furloughed.

Employees in the lowest-paying hospitality and retail sectors are most likely to be hit. The foundation said: ‘As many as 3.1million employees (46 per cent) in these sectors could be furloughed, with an additional 800,000 workers in this part of the economy becoming unemployed.’

From today employers can start applying to the Treasury for financial help under its Job Retention Scheme, which will see the Government paying up to 80 per cent of furloughed workers’ salaries up to £2,500 per month.