Britain’s economy will shrink by 15 per cent between April and June – the steepest contraction on record, experts warn
- The UK will enter deepest recession since the financial crisis, experts warn
- Rescue measures could cause Government borrowing to shoot up to £180billion
- Michael Gove hinted yesterday that a new era of austerity is on the horizon
Britain’s economy will shrink by 15 per cent between April and June in the steepest contraction on record, experts have predicted.
As business closures take their toll, the UK will enter the deepest recession since the financial crisis, they warn today.
The predictions from the Centre for Economics and Business Research (CEBR) come after Michael Gove hinted yesterday that a new era of austerity is on the horizon because the Government will have to repair the enormous hole that the virus crisis has left in its finances.
On the BBC’s Andrew Marr show, Mr Gove stressed that the UK’s coronavirus response package was ‘among the most generous in the world’ but hinted at austerity to come
The Treasury has announced a series of unprecedented rescue packages to limit the damage to the economy, including paying 80 per cent of wages for employees who cannot work and guaranteeing loans made by banks to small businesses.
Mr Gove, the Chancellor of the Duchy of Lancaster, said it was right to enforce the financially-damaging lockdown on British society as it is not possible to ‘put a price on lives’.
But experts think the rescue measures could cause Government borrowing to shoot up to £180billion, or 7 per cent of the UK’s economic output, in the current financial year.
Even after the helping hand for businesses from Chancellor Rishi Sunak, the CEBR expects the UK’s unemployment rate to jump to 7 per cent in July to August
When added to the existing national debt, this would leave the UK with a debt pile equal to the size of its economy by next year. Even after the helping hand for businesses from Chancellor Rishi Sunak, the CEBR expects the UK’s unemployment rate to jump to 7 per cent in July to August, from 3.9 per cent in the three months to January, as workers are laid off and firms cut costs. A 15 per cent contraction in the economy between March and June would be the largest quarterly slowdown since current records began in 1997.
The previous quarterly record was set in the last three months of 2008, in the depths of the financial crisis, when the economy shrank by 2.2 per cent.
The CEBR also thinks house prices will fall by an average of 13 per cent in the year to next March. Boris Johnson has urged housebuyers and sellers to suspend completion dates until the lockdown is over.
Boris Johnson is self-isolating after revealing he had contracted covid-19 as the virus continues to spread
However, most economists expect the UK to rebound rapidly after the lockdown.
The Bank of England said the Covid-19 pandemic would catalyse an ‘economic shock that could prove sharp and large, but should be temporary’.
And the CEBR thinks that measures taken by the Chancellor, including VAT cuts and incentives to encourage businesses to invest, ‘will lead to a sharp bounce back in the third and fourth quarter of the year’. Overall, the economy will shrink by 4 per cent over the whole of 2020, it estimates.
On the BBC’s Andrew Marr show, Mr Gove stressed that the UK’s coronavirus response package was ‘among the most generous in the world’.
‘That will increase the amount that we borrow but the Chancellor and the economic team at the Treasury are confident we can pay that off in due course,’ he said. ‘But ultimately, how do you put a price on life?’
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The Chancellor’s ‘unprecedented’ coronavirus rescue
The government’s bailout for the economy has been announced in stages, starting with the Budget on March 11. Measures include:
- Self-employed workers will be able to get 80 per cent of their previous income covered by the government, up to a limit of £2,500 a month – although only those with trading profits below £50,000 will be eligible.
- The government will cover 80 per cent of wages for companies to keep workers on, up to £2,500 a month.
- VAT bills worth £30billion for the next quarter will be deferred.
- A £7billion boost to welfare to ‘strengthen the safety net’ will be made.
- A £1billion boost to housing benefit to help renters;
- A £30billion fiscal stimulus in the Budget, including £12billion directly for the fight against coronavirus, with more money for NHS;
Government-backed loan guarantees worth £330billion – equivalent to 15 per cent of GDP. The Treasury will increase this with ‘as much capacity as required’
A £20billion package for business including a 12-month rate holiday for all firms in retail, leisure and hospitality sectors, and cash grants of up to £25,000 for smaller companies;
A three-month mortgage holiday for homeowners;
A three-month ban on evictions of renters, and mortgage holiday extended to buy-to-let;
The Bank of England has cut rates twice to a record low of 0.1 per cent. Its quantitative easing scheme – effectively printing money to stimulate the economy – has been expanded to £645billion.