Chancellor of the exchequer Rishi Sunak has warned the UK faces a “severe recession, the likes of which we have not seen” as a result of the lockdown measures set up to curb the coronavirus.
Speaking at a Lords economic affairs select committee meeting today (May 19), Mr Sunak said although the government had put “unprecedented measures” in place, it would not be able to protect “every job and every business”.
He added: “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.”
Mr Sunak was discussing the impact of the coronavirus crisis on unemployment with the chair of the committee, Lord Forsyth of Drumlean.
When asked what unemployment rates might look like by the fourth quarter of this year, Mr Sunak said estimations pointed to around a double digit percentage rate, adding the “impact would be severe”.
He also pointed to the furlough scheme, but Lord Forsyth questioned whether “quite a lot of those people currently furloughed” were actually “currently unemployed”.
Mr Sunak said: “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.”
Figures released by the government today showed the furlough scheme had paid out more than £11bn since its launch last month, with eight million jobs now furloughed in the UK as a result of the pandemic.
The Office of Budget Responsibility has previously warned the UK economy was set to face a record 35 per cent drop in output if the lockdown remained in place until June and for a total of three months.
Warnings have also been sounded by the Bank of England, which last month said the UK was facing “severe economic and financial disruption” caused by Covid-19.
The economy shrank at the fastest rate since records began in March, with gross domestic product falling 5.8 per cent in the month. In the whole of Q1 it shrank 2 per cent.
Over the course of 2020, the bank expects the British economy to shrink by 14 per cent.
imogen.tew@ft.com
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