A severe recession like no other

Chancellor of the Exchequer Rishi Sunak has warned Parliament that the UK faces ‘a severe recession the likes of which we haven’t seen’ as a result of the measures necessary to curb the effects of the coronavirus.

Addressing the Economic Affairs Select Committee he said that though the government had put ‘unprecedented measures’ in place it would not be able to protect ‘every job and every business’.

No doubt

He warned: “There is no doubt there will be more hardship to come. This lockdown is having a very significant impact on our economy and we’re likely to face a severe recession, the likes of which we haven’t seen.”

He was discussing the effect of the pandemic on levels of employment with committee chairman Lord Forsyth of the Drumlean.

Unemployment

When asked what the unemployment rate is likely to look like later this year he said estimations were pointed towards a ‘double digit’ percentage increase, adding ‘the impact would be severe’.

Lord Forsyth questioned: “Are quite a lot of those people currently furloughed actually currently unemployed.”

Hibernate

The Chancellor responded: “They are currently furloughed and that is exactly the point of the scheme — to prevent mass unemployment happening immediately as a result of the lockdown.

“The furlough scheme protects jobs and livelihoods, and that’s why we implemented it. Employees can remain attached to their employers and allow the companies to hibernate for the short-term.”

Swift recovery

He said he hoped for a swift recovery for the economy, but admitted it could take a long time for the country to get back to normal.

He said: “It takes time for people to get back to the habits that they had. There are still restrictions in place.”

Long-term scarring

He added that the question which occupied his mind is: “What degree of long-term scarring is there on the economy and, once restrictions start to be lifted, what will we return to? The longer the recession the degree of that scarring will be greater.

“I think in all cases it will take a little bit of time for things to get back to normal, even once we’ve reopened currently closed sectors.”

Warned

The Office of Budget Responsibility has warned that the economy is set to face a record 35% drop in output if the lockdown continues to June.

The Bank Of England has also warned that the UK is facing ‘severe economic and financial disruption’ caused by the pandemic.

The economy shrank by 5.8% in March – the fastest rate ever recorded – and the Bank is predicting it will shrink by up to 14% over the year.