UK economy to shrink 11.3% this year – as Rishi Sunak commits more than £280bn to battle the COVID crisis

Written by on 25th November 2020

Chancellor Rishi Sunak has told MPs that the UK economy is forecast to have suffered the largest fall in output for more than 300 years as a result of the coronavirus crisis.

As he set out his one-year spending review to the House of Commons, Mr Sunak told MPs the Office for Budget Responsibility had forecast an 11.3% contraction in the UK economy this year.

He added: “Even with growth returning, our economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022.
“And the economic damage is likely to be lasting. Long-term scarring means, in 2025, the economy will be around 3% smaller than expected in the March budget.”

Mr Sunak said the government had this year provided £280bn to battle the COVID crisis, with an initial £18bn already earmarked for next year for spending on personal protective equipment, testing and vaccines.
The chancellor was also set to use his spending review to announce a £4.3bn package of support to help the jobless find work.
This includes a new three-year £2.9bn scheme to help one million unemployed people in their job search – alongside £1.4bn of new funding to increase Job Centre Plus capacity.

Earlier on Wednesday, Mr Sunak and the chief secretary to the Treasury, Steve Barclay, updated the cabinet ahead of the spending review.
Cabinet ministers were warned that economic forecasts by the Office for Budget Responsibility (OBR) made for a “sobering read”.
A Number 10 spokesman said: “Cabinet was told the OBR forecasts will show the impact the coronavirus pandemic has had on our economy and they will make for a sobering read, showing the extent to which the economy has contracted and the scale of borrowing and debt levels.
“But – as the IMF (International Monetary Fund), OBR and others have pointed out – the costs would have been much higher had we not acted in the way we have done.”

The chancellor set out the government’s three priorities for the spending review as protecting people’s lives and livelihoods, investing in public services, and delivering infrastructure funding to “level up and spread opportunity” across the UK.

Wednesday’s spending review came a week ahead of England’s month-long lockdown coming to an end.

This will allow all shops across the country to open for three weeks before Christmas and – Mr Sunak will hope – provide much-needed stimulus for the economy.

Here are the main points:

  • £18bn allocated to testing, PPE and vaccines and £3bn for the NHS plus over £2bn to keep transport arteries open, more than £3bn to local authorities and £250m to help end rough sleeping
  • Altogether public services funding to tackle coronavirus next year will be £55bn
  • This year a total of £280bn provided “to get our country through coronavirus”
  • The OBR expects GDP to shrink by 11.3% this year, the biggest decline in more than 300 years
  • GDP expected to grow by 5.5% in 2021 but will not recover to pre-crisis levels until the fourth quarter of 2022
  • Borrowing is expected to reach £394bn for the current fiscal year, or 19% of GDP – the highest recorded level of borrowing in peacetime
  • The chancellor confirms £3bn for a three-year Restart programme to help a million people who have been unemployed for over a year to find jobs
  • Unemployment is expected to peak at 7.5% in the second quarter of next year
  • Pay rises for over a million nurses, doctors and others working in the NHS but pay rises “paused” for the rest of the public sector next year
  • However the 2.1 million public sector workers earning less than £24,000 will receive a rise of at least £250 – and this means the majority of public employees will see their pay increase in 2021
  • The national living wage will rise by 2.2% to £8.91 per hour and extended to those aged 23 and over. For a full-time worker on the national living wage, that’s an increase of £345 next year. National minimum wage will also increase.
  • Over this year and next, departmental spending will rise in real terms by 3.8%, the the fastest growth rate in 15 years
  • There’s £2.4bn more for Scotland, £1.3bn for Wales and £900m for Northern Ireland
  • Core health budget rises by £6.6bn next year, allowing the government to deliver 50,000 more nurses and 50 million more GP appointments, Mr Sunak said
  • There will also be a £2.3bn increase in capital investments – to replace old MRI and CT scanners and fund a promised hospital building programme
  • Spending 0.7% of national income on overseas aid is “difficult to justify” and at a time of “unprecedented crisis”: it is being cut to 0.5% in 2021 but with the intention to return to 0.7% when the fiscal situation allows
  • “Levelling up” fund worth £4bn


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