Britain’s economy will suffer the biggest plunge in output for more than 300 years and government borrowing will balloon to a peacetime high of £394 billion, the fiscal watchdog has warned.

The Office for Budget Responsibility (OBR) said £218 billion of government support to help the economy through the pandemic will see borrowing soar to the equivalent of 19% of gross domestic product (GDP) in 2020-21.

The borrowing marks the highest level in Britain’s peacetime history and a significant hike on the £372.2 billion forecast by the OBR only three months ago.

It will leave UK public sector debt at 105% of GDP – the highest level since 1959-60.

The OBR warned the economy is not expected to return to pre-pandemic levels until the end of 2022, while unemployment will peak at 2.6 million after furlough support ends next spring.

GDP is predicted to plummet by 11.3% in 2020 – the largest annual fall since 1709, the year of the Great Frost.

This marks an upgrade on the OBR’s economic forecast in July, when its central scenario saw a 12.4% tumble this year.

Growth will then start growing in 5.5% next year, 6.6% in 2022 and 2.3% in 2023.

But Chancellor Rishi Sunak warned the economic damage is likely to be lasting, with the economy around 3% smaller in 2025 than expected in the March Budget.

Earlier today, Chancellor Rishi Sunak gave his one-year Spending Review to the House of Commons.

Here are the key points from his speech:

– Mr Sunak said the Government was providing £280 billion this year to get the country through the coronavirus crisis.

– The Office for Budget Responsibility (OBR) is forecasting the economy will contract this year by 11.3% – the largest fall in output for more than 300 years.

– The OBR expects the economy to start recovering once Covid restrictions are lifted, growing by 5.5% next year, 6.6% in 2022, then 2.3%, 1.7% and 1.8% in the following years.

– The pandemic is likely to have caused “long-term scarring”, meaning in 2025, the economy will be around 3% smaller than expected in the March Budget.

– The UK is forecast to borrow a total of £394 billion this year, equivalent to 19% of GDP – the highest recorded level of borrowing in peacetime history, according to Mr Sunak.

– Underlying debt is forecast to be 91.9% of GDP this year and is predicted to continue rising, reaching 97.5% of GDP in 2025/26.

– The OBR expects unemployment to peak at 7.5% in the second quarter of 2021 – 2.6 million people.

– The Chancellor announced that NHS doctors and nurses will receive a pay rise, but pay rises in the rest of the public sector will be “paused” next year.

– The 2.1 million public sector workers who earn below the median wage of £24,000 will be guaranteed a pay rise of at least £250 next year, however.

– The National Living Wage will increase by 2.2% to £8.91 an hour.

– Total Government department spending next year will be £540 billion, with day-to-day departmental spending rising, in real terms, by 3.8%.

– The overseas aid budget will be cut to 0.5% of gross national income in 2021 but Mr Sunak said the Government’s “intention” was to return to 0.7% when the fiscal situation allows.

– A new UK infrastructure bank – headquartered in the north of England – to finance major new projects is set to be established.

– A £4 billion “levelling up” fund to finance local infrastructure improvement projects will also be created, Mr Sunak said.

– The Chancellor said that through the Barnett formula, Scottish Government funding will increase by £2.4 billion and Welsh Government funding by £1.3 billion, with £0.9 billion for the Northern Ireland Executive.