UK Economy

LONDON (Reuters) - Britain will suffer the sharpest peak-to-trough economic slump of any major economy this year, rating agency Moody’s warned on Friday, and ramp up national debt as a share of GDP by nearly a quarter.

People queue outside a Zara store, amid the spread of the coronavirus disease (COVID-19) in London, Britain June 15, 2020. REUTERS/Hannah McKay
Moody’s said the UK government’s latest 30 billion pound ($37.9 billion) stimulus package, announced this week, would aid a gradual economic recovery but add further pressure to the UK’s fiscal position.

“The UK’s public debt ratio will likely rise by 24 percentage points of GDP or more relative to 2019 levels,” a group of Moody’s top analysts wrote in a note.

“We forecast a contraction of 10.1% in the UK’s GDP for this year, but expect a gradual subsequent recovery on the back of the easing in lockdown measures, with growth rebounding to 7.1% next year”.

Moody’s rates Britain Aa2 with a negative outlook following a series of cuts since the country voted to leave the European Union in mid 2016.

Britain is on course to take state borrowing to World War Two levels with 160 billion pounds of coronavirus emergency measures, though the government has said finances will return to a sustainable footing over the medium term.

Moody’s said high-frequency indicators suggested that economic activity has gradually begun to recover after reaching a trough in April, when GDP is estimated to have contracted by just over 20%.

FILE PHOTO: The sun rises behind the Canary Wharf financial district in London, Britain, February 12, 2020. REUTERS/Hannah McKay/File Photo
“Our forecast estimates a sharper peak-to-trough contraction for the UK than for any other G-20 economy, taking account of our view that lingering uncertainty around Brexit will hold back the recovery in the second half of the year.”

It added the country’s Autumn budget, which usually happens in the last months of the year, would be key to providing greater clarity on the UK’s future path of government indebtedness.

Reporting by Marc Jones; Editing by Tom Arnold and Toby Chopra