The United Kingdom faces a “significant recession” Chancellor Rishi Sunak warned on Wednesday, with the economy facing its sharpest quarterly fall since the 2008 financial crisis.
Figures announced this morning say that the economy has shrunk by 2 per cent over the first quarter of 2020, with a sharp contraction of 5.8 per cent in March.
The 5.8 per cent contraction is the steepest month-on-month fall since records began, despite the number only covering the first week of the lockdown, making a far steeper contraction likely in the subsequent weeks.
Speaking on Wednesday morning, the Chancellor admitted that it is likely Britain will face a significant recession in the wake of the crisis, with experts suggesting that the touted ‘V’ shape recovery may be unlikely.
This new warning comes just a day after Rishi Sunak announced an extension to the furlough scheme, with the government covering up to 80 per cent of worker’s wages through until October. It is expected that the extension of this scheme will help businesses across the country, many of who may otherwise struggle to stay afloat during the crisis.
A far bigger slump in Britain’s economy is expected over the next quarter according to economists, as the Coronavirus lockdown has brought almost economic activity in Britain to a halt.
Speaking to the BBC, Chancellor Rishi Sunak said: “It is now very likely that the UK economy will face a significant recession this year, and we’re already in the middle of that as we speak.”
The internal Treasury memo that highlighted the ongoing economic crisis also suggested that the crisis is likely to cost the treasury £300 billion this year alone, more than 5 times the projected Treasury spend at the beginning of the year.
This bill for this increased spending will likely have to be footed with tax hikes in the coming years, with income tax and a public sector pay freeze amongst the most touted approaches.
The Chancellor suggested that it would be “very challenging without breaking the tax lock.”
Labour has urged the government to reject cuts to public services, with significant fears of a return to austerity Britain that underscored the last decade of British public sector spending.
The gloomy economic picture comes as the government set out their roadmap for the reopening of the British economy, with the current timeline for reopening most businesses being in June.
It is likely that the longer the crisis goes on the deeper the economic crisis will become, but an excessively fast reopening would likely cause even more significant damage.
What is clear though is that Coronavirus has sent Britain into one of the worst economic catastrophes in history and the recovery will likely be a difficult and painful one, even if the government are able to effectively intervene in saving businesses.
Photo Credit: Andrew Parsons / No 10 Downing Street under licence (CC-BY-NC-ND 2.0)