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The UK is likely to be hit by a “severe recession, the likes of which we have not seen” and there may not be an immediate recovery, chancellor Rishi Sunak has warned.
Sunak appeared to dash hopes of a so-called “V-shaped” recovery with the economy going into a deep, but short, recession before bouncing back to pre-coronavirus crisis levels quickly.
And he warned that the “jury is out” on the degree of economic “scarring” the crisis will cause, suggesting that the longer the lockdown is in place, the bigger the impact on unemployment.
“It is not obvious that there will be an immediate bounceback,” the chancellor told the Lords economic affairs committee.
“There will be more hardship to come.
“This lockdown is having a very significant impact on our economy. We are likely to face a severe recession, the likes of which we haven’t seen – and, of course, that will have an impact on unemployment.”
Sunak spoke after benefit claims in the UK soared by more than 69% in April as the coronavirus lockdown gripped the labour market.
The Office for National Statistics (ONS) said claims under Universal Credit by the unemployed and those on low incomes surged by a record 856,000 to 2.1m in April, compared with the previous month.
Sunak said: “The question that occupies my mind, and long-term is more relevant, is: what degree of long-term scarring is there on the economy as a result of this recession?
“What is the loss in productive capacity?
“Because ultimately once we recover from this crisis – by nature I believe it will be temporary, of course: we will suppress the virus, we will progressively now lift the restrictions – the question is what do we return to?
“The jury is out.”
Even as restrictions are lifted it will take time for the economy to recover, the chancellor said.
"Even if we can reopen retail, which we would very much like to be able to do on June 1, there will still be restrictions on how people can shop which will have an impact likely on how much they can spend and how many people go out.
“And all those things will all take time.
“In all cases it will take a little bit of time for things to get back to normal.”
Sunak also said the government spending deficit would be “significant by historic standards” and warned it was currently “unknowable” how much the public purse was losing in tax receipts.
But pointing to the government’s furlough scheme and tens of billions of pounds' worth of other business support measures, he said: “I genuinely believe the situation [...] would have been considerably worse had we not taken this action.”
Sunak added: “If we close down the economy there’s a pretty significant impact that we can’t really do very much about.”