Chancellor Rishi Sunak has said the UK will be plunged into a “significant recession” in the wake of figures showing the economy contracted in the first quarter.
It was the first time during the crisis that Sunak has admitted a recession is on its way, telling The Telegraph that “we’re at a time of unprecedented economic uncertainty”.
The Office for National Statistics (ONS) released figures this morning showing that UK GDP shrunk by 2 per cent in the first quarter.
This was on the back of a 5.8 per cent drop in activity in March when the coronavirus lockdown was implemented.
With GDP certain to shrink again in the second quarter, this puts the UK on track for its first recession in almost a decade.
Sunak said the numbers were not a surprise.
“We’re seeing the impact of coronavirus on our economy and that’s why we’ve taken the unprecedented actions we have to support businesses and indeed people in their jobs and incomes through what is a very difficult time,” he said.
“I think we’re at a time of unprecedented economic uncertainty – that’s something that both the Office for Budget Responsibility and Bank of England have said.
“There are a range of scenarios out there, but as I’ve said we are facing a period of significant disruption and we are now likely to see a significant recession.”
It comes as The Telegraph revealed leaked Treasury estimates last night, showing this year’s budget deficit could rise as high as £516bn – ten-times more than expected on Budget day in March.
The figures revealed that a “U-shaped” recovery would lead to a budget deficit of £337bn, which is being used as the control assumption.
The Treasury paper also discussed potential methods of cutting the deficit over the next five years.
Measures include potential income tax rises, a freeze on public sector pay, VAT rises and an end to the pensions triple lock.
Sunak said today that it was too early to speculate about future fiscal policy.
“It’s completely premature to speculate about future public finances, budgets and the economy,” he said.
“What we do know is that the best way to have strong public finances and a strong economy in the future is to protect as many businesses and jobs today.”