Britain faces “a severe recession the likes of which we haven’t seen” as the coronavirus and the lockdown ravage the economy, Rishi Sunak has warned.
The Chancellor said “no doubt there will be more hardship to come” as he cautioned workers that “although we have put unprecedented mitigating actions in place, I certainly can’t protect every job and every business”.
He was speaking after jobs numbers revealed employment likely slumped by around 450,000 in April, with almost 860,000 more people signing up for out of work benefits. That is the biggest jump since the harsh winter of 1947 slammed the brakes on the economy.
One in nine people in some parts of Britain are now out of work.
The surge is six times higher than seen at the peak of the financial crisis, when 143,000 workers sought benefits in February 2009
Economists expect much worse is on the way as the number of job vacancies available collapsed at the fastest pace on record.
“I’m afraid we’re in the early days of pretty dire economic statistics that are going to get worse and worse,” said Rain Newton Smith, chief economist at the CBI.
“Businesses are not going out and hiring apart from a very very few smaller sectors, such as distribution for online sales.”
This came despite the job retention scheme (JRS) under which 8m workers are now on furlough, being paid by the Government instead of risking losing their jobs.
Kallum Pickering, senior UK economist at Berenberg, said: “We expect the unemployment rate to jump to a high of around 9.5pc in late second quarter from the 3.9pc rate in March.
“That implies a rise in the number of unemployed workers to around 3.3m from around 1.35m in March – far exceeding the previous peak of 2.7m in October 2011 in the wake of the financial crisis. However, the rise will be much smaller than it would have been without the [furlough scheme].”
The mounting cost of the scheme is putting limits on the Government’s ability to extend the support indefinitely.
Mr Sunak ruled out any extension of the JRS to sectors such as retail, leisure and tourism which have been hit hardest by the lockdown, arguing that it is too complicated to work out which businesses would and would not qualify for extra help.
“What we did was have a much more generous approach for everybody that lasted longer,” he said, noting that business will have to chip in to pay some of the wages from August.
“I do think it is right for people to make a contribution. Not only does that mean we can afford to run the scheme for longer which benefits more people, which is a good thing, I think it makes sure the incentives are right. What we want to do is incentivise businesses to reopen… and be as productive as possible.”
He added that they key for the next few years is the pace and extent of the economic recovery.
The Chancellor played down the chances of a neat and rapid “v-shaped” recovery, in which output swiftly returns to its pre-pandemic levels, and instead warned of “scarring” blighting the nation for years to come.
“The question which occupies my mind and in the long-term is more relevant is what degree of long-term scarring there is on the economy as a result of this recession?” he told the House of Lords’ Economic Affairs Committee.
“It will be temporary, we have suppressed the virus, we will progressively lift the restrictions. The question is what will we return to? The jury is out. We are clearly dealing with something that is unprecedented.
“The longer the depth of the recession, everyone would agree, the longer the recession it is likely the degree of that scarring will be greater.”
The alarming jobs data came as the Make UK manufacturing organisation warned that more than a third of the sector believe it will take more than a year to return to normal trading.
The same proportion will wait for an increase in orders before taking staff off furlough, its survey of members found.
Chief executive Stephen Phipson said: “If we thought we were in for a long haul before now, then this puts into stark context the reality for many companies over the next year. It’s clear that it is going to be a long road back.”
The British Chambers of Commerce’s latest snapshot of members found that 37pc of respondents could fully restart operations by implementing government guidance.
But it added that due to social distancing guidelines many firms will see reduced demand and be unable to restart at full capacity.