4th December, 2020
The Covid-19 pandemic is set to deal a lasting blow to the UK economy and labour market, according to Chancellor of the Exchequer Rishi Sunak at his Spending Review, with economic output not expected to return to pre-pandemic levels until the end of 2022. The Chancellor said: “This is an economic emergency. That’s why we have taken, and continue to take extraordinary measures”.
The UK economy is forecast to contract by 11.3% this year, representing its steepest drop for over 300 years. Although growth is predicted to recover to 5.5% in 2021, rising to 6.6% in 2022, economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022. The Chancellor warned of “long-term scarring” from the pandemic, commenting: “In 2025, the economy will be around 3% smaller than expected in the March Budget”.
Borrowing is forecast to reach its highest-ever level for peacetime, rising to £394 billion in 2020, which is equivalent to 19% of GDP. Meanwhile, underlying debt – which strips out the impact of Bank of England’s asset purchases – is predicted to be 91.9% of GDP this year, rising to 97.5% of GDP by 2025/26.
The rate of unemployment is expected to peak at 7.5% in the second quarter of 2021, with 2.6 million people out of work. There will be a widespread pay freeze for public sector workers, although NHS workers and those earning below £24,000 per year will receive an increase. The National Living Wage will rise by 2.2% to £8.91 per hour.
The Chancellor also announced £2.9 billion for the Government’s three-year “Restart” scheme aimed at the long-term unemployed, and £1.6 billion for its “Kickstart” scheme for young people at risk of long-term unemployment. A new “Levelling Up” fund worth £4 billion will finance upgrades for local infrastructure projects. A package of funding for health and social care includes £18 billion for coronavirus testing, vaccines, and PPE, alongside an additional £3 billion to support the NHS.
The measures in the Spending Review were generally welcomed by the Confederation of British Industry (CBI), which nevertheless warned: “Ambition must be matched by action on the ground”. Elsewhere, the British Chambers of Commerce (BCC) commented: “With an uncertain winter ahead, the government will need to maintain an open mind on providing further support to businesses struggling to survive”.
Get in touch using the details below to see how we could help you further.
This article was sourced from Adviser-Hub.co.uk.
Call Us For Expert Advice On:
0115 958 4115 or 0345 408 0707