The United Kingdom will borrow nearly 400 billion pounds this year to pay for the massive coronavirus hit to its economy, finance minister Rishi Sunak said on Wednesday, as the budget deficit jumps to its highest since World War II.
The world’s sixth-biggest economy is now set to shrink by 11.3 percent in 2020, its biggest contraction since the early 1700s, before growing by 5.5 percent in 2021, Sunak said as he announced a one-year spending plan.
“Our health emergency is not yet over. And our economic emergency has only just begun,” he told Parliament. “So our immediate priority is to protect people’s lives and livelihoods.”
Announcing the latest forecasts from the Office for Budget Responsibility (OBR), Sunak said public borrowing would be 394 billion pounds ($526bn) in the 2020-21 financial year that began in April.
That was equivalent to 19 percent of gross domestic product (GDP), the highest ever during peacetime and almost double its level after the global financial crisis which took nearly 10 years of unpopular spending cuts to work down.
In the financial year 2019-20, which ended as the country began to be hit by the COVID-19 pandemic, borrowing was just more than 56 billion pounds ($75bn), or 2.5 percent of GDP.
Britain’s economy has been hit harder by the coronavirus pandemic than those of many other rich nations. Nearly 56,000 Britons have died from COVID-19, the highest death toll in Europe.
The OBR said the economy was only likely to regain its pre-crisis size at the end of 2022.
Sunak has rushed out emergency spending and tax cuts to offset the crisis, including a recent extension of the government’s centrepiece jobs protection scheme.
Sunak said the cost of the fight against coronavirus was now 280 billion pounds ($374bn) this year, up from a previous estimate of about 200 billion pounds ($267bn).
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He has previously said it is not the time to start reining in borrowing sharply, with the economy likely to shrink again in the fourth quarter of 2020 after the latest coronavirus restrictions on businesses.
Over this year and next, day-to-day spending will rise in real terms, by 3.8 percent, the fastest growth rate in 15 years, Sunak said, adding that 100 billion pounds ($133bn) would be spent next year on longer-term investment, 27 billion pounds ($36bn) more than last year.
But he signalled early moves to offset at least some of his spending by announcing a freeze on pay for most public sector workers, except doctors, nurses and other healthcare staff.
He also announced a reduction in Britain’s foreign aid budget.
“I want to reassure the House that we will continue to protect the world’s poorest, spending the equivalent of 0.5 percent of our national income on overseas aid in 2021,” Sunak said.
“And our intention is to return to 0.7 percent when the fiscal situation allows.”
Britain is also facing the risk of a trade shock within six weeks, when its post-Brexit transition deal is due to expire. No new trade agreement has yet been reached with the European Union.