LONDON – The UK is facing a severe recession “the likes of which we have not seen” due to the Covid-19 crisis, Rishi Sunak warned, as the number of people claiming unemployment benefits soared by nearly 70 per cent.
The Chancellor also raised grave doubts of an immediate bounceback for the economy and spoke of his fears of permanent “scarring” to the nation’s economic health.
His comments came as figures released revealed the number of benefit claims in April increased by 856,500 to nearly 2.1 million, during the first full month of the lockdown imposed in response to the Covid-19 outbreak.
The data, published by the Office for National Statistics, marks a 69 per cent rise in universal credit and jobseekers’ allowance claims in just one month, the highest single month rise since records began in the early 1970s.
This is despite the Treasury paying the wages of around 10 million people, after officials revealed more than 8 million people had been furloughed by employers, and a further 2 million self-employed workers had accessed government support.
Fielding questions from the Lords’ Economic Affairs Committee, Mr Sunak offered a gloomy outlook for the economy, warning it was unlikely there would be a “V-shaped” recovery once restrictions are eased further.
“It is not obvious that there will be an immediate bounceback, it takes time for people to get back to the habits that they had,” Mr Sunak told peers, adding that the economy is likely to see a huge downturn.
Due to the incremental approach to lifting the lockdown, consumers will not be able to return quickly to start driving growth, he added.
“Obviously the impact will be severe,” he said. “We are likely to face a severe recession the likes of which we have never seen, and obviously that will have an impact on employment.”
The Chancellor also revealed the level of “scarring” to the economy is what “most occupies my mind”, as he admitted the “jury is out” in terms of what the health of the economy will be once the lockdown is eased.
The ONS figures also revealed the number of people made unemployed had risen by 50,000 in the first three months of the year to March, but the statistics took in just one week of the Government-imposed lockdown.
It led Work and Pensions Secretary Therese Coffey to warn people “should be prepared for the unemployment rate to increase significantly”.
Double digit unemployment
The UK labour market entered the Covid-19 crisis in rude health, with unemployment rate of 3.9 per cent – the lowest it has been since 19764. The Office of Budget Responsibility has previously suggested unemployment could reach “double digits” in the wake of the pandemic.
Labour’s Shadow Chancellor Anneliese Dodds said the unemployment figures were “deeply worrying” and warned they could worsen if the Government takes the “wrong decisions” when it comes to changing its furlough scheme.Nye Cominetti, senior economist at the Resolution Foundation think tank, said: “Today’s figures highlight the speed and scale of Britain’s job crisis.
“Even despite widespread furloughing, Britain could still be facing the highest unemployment levels it has had in over a quarter of the century.”