LONDON- Britain will borrow almost 400 billion pounds this year to pay for the massive coronavirus hit to its economy, finance minister Rishi Sunak said on Wednesday, as he took his first steps to offset the country’s highest budget deficit outside wartime.
The world’s sixth-biggest economy is now set to shrink by 11.3 percent in 2020 – the most since “The Great Frost” of 1709 – before recovering by less than half of that in 2021, Sunak told parliament as he announced a one-year spending plan.
“Our health emergency is not yet over. And our economic emergency has only just begun,” he said, promising more money for health, infrastructure, defence and to fight unemployment.
Britain’s budget watchdog estimated borrowing would be 394 billion pounds ($526 billion) in the 2020/21 financial year that began in April, slightly more than it predicted in August.
At 19 percent of gross domestic product, the deficit will be almost double its level after the global financial crisis which took nearly a decade of unpopular spending squeezes to work down.
Sunak announced cuts to foreign aid spending and a freeze on pay for many public sector workers.
But with many public services still stretched, Sunak is expected to look more at tax rises to make up the shortfall.
“We have a responsibility, once the economy recovers, to return to a sustainable fiscal position,” he said on Wednesday.
Britain was hammered harder by the coronavirus pandemic than most other rich economies as it underwent a long lockdown.
Nearly 56,000 Britons have died from COVID-19, the highest death toll in Europe.
Even with recent positive news about vaccines, the Office for Budget Responsibility (OBR) said the economy was only likely to regain its pre-crisis size at the end of 2022 – or later if Britain fails to get a post-Brexit trade deal with the European Union before a transition arrangement expires on Dec. 31.
Sunak made no reference to Brexit in his speech.
Since the pandemic struck Britain a few weeks after he took over as finance minister, the former Goldman Sachs analyst has rushed out emergency spending – much of it on pay subsidies to fend off a surge in unemployment – and tax cuts.