Chancellor Rishi Sunak has warned the nation faces a “severe recession” the likes of which it has never seen before. One economist fears the current crisis is putting many businesses under such severe strain, they are only able to retain staff thanks to the Government’s furlough scheme. The National Institute of Economic and Social Research (NIESR) published its Monthly Wage Tracker today – with its findings making gloomy reading for anyone hoping for a swift recovery.
The report indicates by early May, a quarter of paid employees had been furloughed, with 80 per cent of their pay (capped at £2,500 per month) being met by the government.
As a result, measured average earnings will fall in the short term, reflecting the lower pay of those who have been furloughed.
As an early indicator, the median monthly pay fell by £55 in April to £1789 per month – a drop of almost three percent.
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Dr Garry Young, deputy director at NIESR, said: “The extent of the economic fallout from COVID-19 is becoming clearer.
“Many businesses are under severe financial pressure and are only able to retain staff because of the Government’s furlough scheme which is currently supporting 7.5 million jobs.
“Despite this, claimant unemployment rose above two million in April, the highest level since 1996, and it is very likely that we will see falls in pay in the months ahead.”
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ONS figures published today confirmed the unemployment claimant count increase by 850,000 to 2.1 million in April, in a stark illustration of the severity of the situation.
Mr Sunak told the Lord’s Economic Affairs Committee today: “It is not obvious that there will be an immediate bounceback.
“Obviously the impact will be severe.
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“We are likely to face a severe recession the likes of which we have never seen.”
Hundreds of thousands of businesses have already received in excess of £22 billion in three Government-backed loans from banks to help them weather the storm.
The schemes cover 90 percent or more of UK turnover and profit, Mr Sunak said.
He added: “We have the coverage that we want across all our loan schemes, so there isn’t any need for any more changes.”
The best way of supporting some of the worst-hit businesses – for example restaurants – was to help them to reopen.
Mr Sunak said lower earners and young people were particularly badly impacted.
He added: “It is critical, both for economic and social justice reasons, that we get those people back to work.”
Speaking last month, Professor Tony Travers, director of LSE London, told Express.co.uk the full impact of the pandemic would only become apparent once the furlough scheme – which has been extended until October – begins to be wound up by the Government.
He warned: “I think the bigger problem for Boris Johnson is that the economic impact phase, let’s call it that, is going to be a very nasty time to be the Prime Minister during.
“I think that’s not going to be his best suit, trying to be the Prime Minister of an economy which has shrunk by at least 10 percent in a year, like shrink by 15 or 20 percent over two years, with a big spike in unemployment, and a whole range of other consequences, that is going to be difficult for him.”
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