The Office for Budget Responsibility (OBR) said unemployment could hit 3.4m, leaving around one in 10 of the working population without a job, with the economy shrinking by 35 per cent.
The grim outlook, based on lockdown lasting three months, said public sector net borrowing could reach £273bn in 2020-21, or 14 per cent of gross domestic product (GDP), marking the biggest deficit since the Second World War.
Consultancy firm Bradshaw Advisory estimated such a downturn would cost the economy in Yorkshire and the Humber £11bn.
Managing Director Tom Lees said: "These strict lockdown measures are causing significant damage to many businesses across the country, the education of the next generation, vaccination rates, mental health and the economy.
"If the Government is not careful the medicine will end up being more damaging to the country than the disease.
"Many small businesses will struggle to come through the other side if measures go on for too much longer. Meaning fewer jobs, more boarded-up shops in our town centres and less money to invest in our schools, transport and NHS.
"We need a clear timetable for the lockdown to be eased and honesty from politicians about the trade-offs involved in keeping such unprecedented restrictions in place compared versus loosening them."
But Chancellor Rishi Sunak today said “the measures we’ve put in place will help and then as we get through this it will mean that we can recover quickly and strongly and get our lives and economy back to normal”.
He told the daily Downing Street press conference: “Right now, the single most important thing we can do for the health of our economy is to protect the health of our people.”
It comes as a further 778 deaths from the coronavirus in hospitals were recorded today, bringing the total to 12,107
At least 781 of those deaths have been in Yorkshire, this rose by 65 people in latest data.
Following reports of Cabinet rifts over the potential length of the lockdown and the economic damage that it will cause, Mr Sunak said: “It is not a case of choosing between the economy and public health. Common sense tells us that doing so would be self-defeating.
“At a time when we are seeing hundreds of people dying every day from this terrible disease, the absolute priority must be to focus all of our resources – not just of the state but of businesses and all of you at home as well – in a collective national effort to beat this virus.”
Forecasters at the OBR stressed this was a single scenario where “we have not assumed the shock has lasting economic consequences” and should not be taken as a sign of what Government policy will be.
The report also said there will be a sharp bounce back in the economy, with gross domestic product likely to jump 25 per cent in the third quarter and a further 20 per cent in the final three months of 2020.
Mr Sunak said some of the figures in the OBR scenario were “not surprising” as the country is dealing with a crisis “unlike anything we’ve seen before”.
He said: “I genuinely don’t believe this is a time for ideology or orthodoxy – this is an unprecedented time and unprecedented crisis and that calls for an unprecedented economic response.
“So in that sense it’s not surprising to see some of these figures because what we’re dealing with here is unlike anything we’ve seen before which is why we’ve put in place the measures we have.”
Asked if the country would be feeling the costs of the crisis for a generation, Mr Sunak said: “This is going to be hard, our economy’s going to take a significant hit and as I’ve said before that’s not an abstract thing, people are going to feel that in their jobs and in their household incomes.”
He added: “The measures we’ve put in place can significantly mitigate that impact, in particular the jobs retention scheme, the furloughing scheme we’ve put in place aims to do exactly that, ensure that fewer people are unemployed but remain attached to their company through the furlough scheme.
“And then also as the OBR says the reason that’s a good thing, not just in the short term, which means when we get through this, we can bounce back as quickly as possible.
“I very much hope that the measures we put in place will allow us to do exactly as the OBR have said, bounce back.”
Mr Sunak added: “These are tough times and there will be more to come.”