London: The U.K. is headed into a recession unprecedented in scale, Chancellor of the Exchequer Rishi Sunak warned Tuesday as he laid bare the extent of the economic cost of the coronavirus.
“We are likely to face a severe recession, the likes of which we haven’t seen,” Sunak told the House of Lords Economic Affairs Committee on Tuesday. “It isn’t obvious that there will be an immediate bounce back” from a lockdown that is “having a very significant impact on our economy,” he added.
The virus has forced Sunak to adopt unprecedented measures, including paying a portion of workers’ wages, in a bid to ensure that as much of the economy remains intact as possible once the crisis is over.
The government’s key goal, Sunak said, was to preserve productive capacity to help boost the recovery.
Also read: India will see its worst recession ever with 45% GDP fall in Q2 this year, Goldman says
“The question that occupies my mind, and indeed long term is probably more relevant, is you know what degree of long-term scarring there is on the economy,” he said. “The longer the recession, it is likely the degree of that scarring will be greater.”
The Bank of England has predicted that a three-month lockown could lead to a 14% slump this year — the deepest recession since the early 18th century. Still, the BOE and the Office for Budget Responsibility also foresaw a relatively rapid bounceback in 2021 — a scenario many economists said was overly-optimistic.
Figures published Tuesday show the cost of government support is already approaching 40 billion pounds ($49 billion), while the government is supporting some 10 million jobs. Even with that help, claims for jobless benefits spiked by the most on record in April, according to official data published Tuesday.
“Although we’ve put unprecedented mitigating actions in place, I certainly won’t be able to protect every job and every business,” Sunak told the committee. The data point toward the U.K. reaching a “double-digit” unemployment rate, he added.
He declined to speculate on the likely size of this year’s budget deficit, beyond saying it will be “significant by historic standards,” and added that it is hard to predict how big the hit to tax revenue will be.
He also said no firm decisions had been taken on a debt level he acknowledged would be elevated. His comments come amid growing pressure on the government to tackle the fiscal damage left by the crisis by boosting economic growth rather than returning to the era of austerity.-Bloomberg
Also read: Xi Jinping faces a threat: China’s millions of newly jobless people