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Britain’s economic recovery from the coronavirus pandemic has been put “on hold” as a result of the second wave of the virus and tougher government restrictions, a senior Treasury official has warned.
Charlie Bean, a former Bank of England deputy governor who sits on the government’s budget responsibility committee, said a rapid rebound from lockdown earlier this year had stalled at the start of autumn amid a jump in coronavirus cases.
Answering questions from MPs on the Commons Treasury committee, the former Bank chief economist said: “It’s reasonable to think that at a minimum this is going to put the recovery on hold for a while.”
Bean, a member of the Office for Budget Responsibility, said good news about the pace of recovery had now given way to more worrying updates as autumn approached, with high-frequency indicators of business and social activity indicating a slower rebound.
“It’s reasonable to suggest there will be some hiatus in the recovery,” he said. “How long and how potentially deep that is, I think is very difficult to know at this stage, till we see how effective any measures are in bringing the resurgence in cases back under control. One has to recognise the uncertainty.”
The warning comes as the OBR prepares fresh estimates for the economy and government finances, both of which are due to be published later next month after a request from Rishi Sunak.
Speaking days after the chancellor warned “hard choices” would be necessary to reduce record levels of national debt, Bean said fixing the public finances was not a priority while Britain faced continuing risks from the pandemic.
“I think it is worth saying that at the current juncture one shouldn’t think there is a great urgency in closing the deficit,” he said. “But as one goes beyond the emergency, then it will be appropriate to stabilise the public finances and potentially start building in fiscal space to recognise that there’ll be future bad shocks further down the road.”
However, the new head of the OBR, Richard Hughes, said the public finances had become riskier since the start of the pandemic because of a sharp rise in debt.
The UK’s national debt has risen to more than £2tn, as spending increases to soften the economic fallout from the crisis. It is the equivalent of 102% of gross domestic product, the highest level since the 1960s.
During the first five months of the financial year, the budget deficit – the difference between public spending and revenue from taxes – has risen to almost £174bn, more than three times the £55.8bn borrowed last year.
Hughes, who replaced Robert Chote earlier this month, said rapid growth in government debt and a change in its structure had made the country more sensitive to movements in interest rates.
Although borrowing costs have dropped to record low levels, making it cheaper for the government to service its debts, Hughes said an increase in interest rates on global bond markets would push up the amount of money the government paid on its debt interest payments.
“There are reasons for us to be more concerned about the level of debt because of sensitivity to interest rate shocks,” he said.
Source: The Guardian
Keyword: UK recovery on hold owing to Covid second wave, says OBR official | Business