The UK economy will shrink by 15 percent between April and June – the strongest contraction ever, experts warn
- The UK is entering the deepest recession since the financial crisis, experts warn
- Rescue measures can lead to government bonds shooting up to £ 180 billion
- Michael Gove hinted yesterday that a new era of austerity is on the way
The UK economy will shrink by 15 percent between April and June in the strongest contraction ever, experts predicted.
As corporate shutdowns take their toll, the UK will enter the deepest recession since the financial crisis, they warn today.
The Center for Economics and Business Research (CEBR) predictions come after Michael Gove hinted yesterday that a new era of austerity is on the way, as the government will have to repair the huge hole the virus crisis has left in its finances.
During the BBC’s BBC show Andrew Marr, Mr Gove emphasized that the British coronavirus response package was “one of the most generous in the world”, but hinted at austerity in the future
The Treasury has announced a series of unprecedented rescue packages to mitigate the damage to the economy, including paying 80 percent of the wages for workers who are unable to work and securing bank loans to small businesses.
Mr Gove, the Chancellor of the Duchy of Lancaster, said that it was right to compel the financially damaging closure of British society, since it is not possible to “put a price on lives.”
But experts believe the rescue measures could lead government debt to shoot up to £ 180 billion in the current fiscal year, or 7 percent of the UK’s economic output.
Even after helping Chancellor Rishi Sunak help, CEBR expects the UK unemployment rate to rise to 7 percent in July through August
If added to existing government debt, the UK would have a debt stock equal to the size of its economy next year. Even after helping Chancellor Rishi Sunak help businesses, CEBR expects unemployment in the UK to rise to 7 percent in July to August, from 3.9 percent in the three months to January as workers are laid off and companies cost save. A 15 percent contraction in the economy between March and June would be the biggest quarter-on-quarter slowdown since current records started in 1997.
The previous quarterly record was set in the last three months of 2008, in the midst of the financial crisis, when the economy contracted by 2.2 percent.
CEBR also expects house prices to fall by an average of 13 percent in the year to March. Boris Johnson has urged home buyers and sellers to suspend delivery dates until the blockage is over.
Boris Johnson isolates himself after revealing that he contracted covid-19 as the virus continues to spread
However, most economists expect the UK to recover soon after the closure.
The Bank of England said the Covid-19 pandemic would cause an “economic shock that could turn out to be sharp and big, but should be temporary.”
And the CEBR thinks that the measures taken by the Chancellor, including VAT reductions and incentives to encourage companies to invest, “will lead to a sharp rebound in the third and fourth quarters of the year.” Overall, the economy will shrink by 4 percent throughout 2020, he estimates.
During the BBC’s BBC show Andrew Marr, Gove emphasized that the British coronavirus response package was “one of the most generous in the world.”
“That will increase the amount we borrow, but the Chancellor and the Treasury’s economic team are confident that we will be able to repay it in due course,” he said. “But how do you ultimately determine life?”
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The ‘unprecedented’ coronavirus rescue of the chancellor
The government’s rescue for the economy has been announced in stages, starting with the budget on March 11. Measures include:
- Self-employed workers will be able to cover 80 percent of their previous income through the government, up to a maximum of £ 2,500 per month – although only those with a trading profit of less than £ 50,000 are eligible.
- The government covers 80 percent of the wages for companies to retain workers, up to £ 2,500 a month.
- VAT invoices worth £ 30 billion for the next quarter are being postponed.
- A wealth contribution of £ 7 billion will be made to ‘strengthen the safety net’.
- An increase of £ 1 billion for housing benefit to help tenants;
- A fiscal stimulus of £ 30 billion in the budget, including £ 12 billion directly to fight the corona virus, with more money for the NHS;
Government-backed loan guarantees worth £ 330 billion – equivalent to 15 percent of GDP. The Treasury increases this with ‘as much capacity as necessary’
A £ 20 billion package for businesses, including a 12-month holiday for all retail, leisure and hospitality businesses, and cash grants of up to £ 25,000 for smaller companies;
A three-month mortgage vacation for homeowners;
A three-month ban on tenant evictions and mortgage holidays extended to buy-to-rent;
The Bank of England has cut interest rates twice to a record low of 0.1 percent. The quantitative easing scheme – effectively printing money to stimulate the economy – has expanded to £ 645 billion.