The UK economy is about to suffer the steepest slump in economic activity since records began, according to a new report.

The Centre for Economics and Business Research says it expects a contraction of 15% in GDP in the second quarter of this year as businesses close and unemployment soars, but predicts the economy will bounce back strongly once restrictions on economic activity are eased later in the year.

The report authors said: “Our central assumption is that restrictions on businesses and the wider populations will be loosened by the third quarter as testing becomes more widely available, helping to identify and isolate infection hotspots more efficiently.

“We also expect the government to introduce measures to kick-start consumer spending as the economy returns to work, possibly a temporary VAT cut. This will lead to a sharp bounce back in the third and fourth quarter of the year. Over 2020 as a whole we expect GDP to be 4% lower than in 2019.”

The CEBR says GDP growth will recover to 3.5% in 2021 and 2.5% in 2022, but the unemployment rate will rise sharply to reach 7% in Q3 this year despite government measures.

The authors also say: “The biggest proportional hit to the economy is likely to come from falling business investment. We predict this will be down 13% in 2020. Although there will be a recovery, the forecasts suggest it will take till 2032 for business investment to catch up with its 2017 peak unless measures are taken to encourage it,”

They add that house prices are likely to fall sharply with a drop of 13% in the year to Q1 2021.