UK Chancellor Sunak Boosts Spending, Warns Of Economic Emergency

(RTTNews) - UK Chancellor of the Exchequer Rishi Sunak on Wednesday boosted spending on infrastructure and plans to create jobs for the unemployed as official forecasts pointed to the worst economic contraction in over 300 years due to the impact of the coronavirus pandemic.

"Our health emergency is not yet over," Sunak told lawmakers as he presented the latest Spending Review.

"And our economic emergency has only just begun."

The chancellor said public services funding to tackle coronavirus will total GBP 55 billion next year.

Earlier in the day, the Office for Budget Responsibility projected an 11.3 percent contraction for the UK economy this year, which will be the biggest fall in output for more than 300 years.

The economy is expected recover as Covid-19 lockdown restrictions are eased and log 5.5 percent growth next year and 6.6 percent expansion in 2022. The pace of growth is seen slowing to 2.3 percent in the following year.

That said, UK growth is not expected to return to pre-crisis levels until the fourth quarter of 2022. The damage will be lasting and is likely to keep the economy 3 percent smaller than earlier expected in 2025, Sunak said.

The chancellor raised borrowing to a record level for the peacetime. Borrowing is forecast at GBP 394 billion, or 19 percent of GDP, this year. This is expected to fall to GBP 16 billion next year and be around 4 percent of GDP beyond 2022-23. Underlying debt was forecast at 91.9 percent of GDP this year, excluding the one-off effect of the Bank of England asset purchases. The ratio is expected to keep growing and reach 97.5 percent in 2025-26. Sunak allocated nearly GBP 3 billion to start a new three-year Restart Programme aimed to help over a million unemployed people find new work. Despite the support measures from the government such as the furlough scheme, OBR projected unemployment to peak in the second quarter of next at 7.5 percent or 2.6 million people. Joblessness is then forecast to drop every year and touch 4.4 percent by the end of 2024. The chancellor guaranteed a pay rise of at least GBP 250 to 2.1 million public sector workers who earn below the median wage of GBP 24,000.

He also announced a pay rise to over a million nurses, doctors and others working in the NHS, but decided to freeze pay rise for the rest of the public sector in a bid to protect jobs. Sunak accepted recommendation to raise the National Living Wage by 2.2 percent to GBP 8.91 an hour, extend it to those aged 23 and above, and also to increase the National Minimum Wage rate. The core health budget is set grow by GBP 6.6 billion and the capital investment in the health care sector is set to be increased by GBP 2.3 billion.

Sunak increased the schools' budget next year by GBP 2.2 billion. The chancellor also launched a GBP 7.1 billion National Home Building Fund.