U.K. Gets Fresh Warnings of Economic Scars Before Sunak Speaks
(Bloomberg) -- The U.K. got fresh warnings of the lasting economic damage the coronavirus pandemic will inflict on the economy just as Chancellor of the Exchequer Rishi Sunak prepares to face lawmakers on Monday.
Sunak, who last week extended the U.K.’s much-heralded jobs retention plan, is expected to field questions in Parliament amid growing speculation about how the nation will foot the bill for the dramatic increase in borrowing needed to fund his plans.
The finance minister said last week that data showing a record 5.8% economic contraction in March suggested the U.K. was probably in the midst of a significant recession, and the weekend saw more warnings of the scale of pain ahead.
Bank of England Chief Economist Andy Haldane told the Telegraph newspaper the U.K. is heading toward an unemployment crisis comparable to the one experienced in the early 1980s, while the chairman of the nation’s fiscal watchdog said output was likely around a third smaller than it usually is last month. A labor market survey showed that about one in five employers plan to make redundancies over the next few months.
Robert Chote, who heads the Office for Budget Responsibility, told the BBC that the April contraction would likely be the nadir of the coming recession. The bigger question, he said, is how long the recovery would take and the scarring effects.
“The key worry is if you have not just a very sharp downturn in the economy but one that scars its future potential,” Chote said. “It’s a matter of psychology as much as the concrete restrictions as well.”
A period of austerity to help pay for the government’s financial response to the crisis isn’t “a done deal,” he said.
Data this week will shed more light on the scale of the economic damage, as the nation releases reports on unemployment, inflation and retail sales. A private survey will give a real-time view of the extent of any partial rebound in May.
A survey on the labor market outlook by the the CIPD professional body for HR and the recruitment group Adecco showed that planned redundancies increased to 21% from 16%.
Getting the economy moving again has been a key priority of the government as it looks to encourage a skeptical electorate that they should return to offices and, particularly, send their children back to school next month. Earlier in May, it dropped the “stay at home” message for “stay alert” -- a shift that left many Britons confused.
The new approach has also prompted concerns over safety in a nation that has the highest death toll from the virus in Europe and helped prompt a shift in public sentiment against Prime Minister Boris Johnson’s overall strategy. An Opinium poll published in the Observer newspaper showed more people now disapprove of the government’s handling than approve of it for the first time since it started tracking views on the pandemic in March.
In an opinion piece for the Mail on Sunday, Johnson acknowledged people’s frustration with the “complex” easing of England’s lockdown, but called on the “good sense of the British people” to act responsibly and allow the country to slowly return to normal life. The U.K. on Sunday announced a further 170 deaths from the virus, the lowest increase since March, while a report by the Sun on Sunday said Johnson has told backbench Conservative lawmakers that he wants a return to near-normality in July.
Still, Johnson wrote in his op-ed that Britain may not be free of the coronavirus “for some time to come,” and said the way to control the outbreak was “through testing and tracing.”
In an interview with Sky News on Sunday, Cabinet Office Minister Michael Gove said the government has recruited 17,000 contact tracers and will be ready to roll out its plan by end of the month. The U.K. is “making progress” against the virus, and that the number of people being infected is falling day by day, he said.
In other developments:
- The government announced AstraZeneca Plc will make as many as 30 million doses of vaccine available to the U.K. by September and has committed to delivering 100 million doses this year. The U.K. will get first access to the vaccine should it be successful
- It also said a vaccine production facility will open in the summer of 2021, a year earlier than previously planned, after receiving a total of 131 million pounds in government funding to accelerate development
- The Times reported the U.K.’s plans for quarantining those who travel abroad would have only few exceptions, such as truck drivers, scuppering hope for Brits wanting to take foreign holidays this summer
- Carolyn Fairbairn, director general of the Confederation of British Industry, said on Sky that the week had been one of “glimmers of light at the end of the tunnel” for U.K. firms, but cautioned that policies need to be coordinated across sectors and regions.
- The U.K. Competition and Markets Authority is seeking emergency powers to fight companies that are profiteering during the coronavirus pandemic, Chief Executive Officer Andrea Coscelli told the Financial Times.
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