Sunak warns of 2.6m unemployed as UK faces historic recession

London

CHANCELLOR of the Exchequer Rishi Sunak warned the United Kingdom will suffer its deepest recession in more than 300 years as a result of the coronavirus pandemic, with 2.6 million unemployed, as he set out government spending plans.

"Our health emergency is not yet over and our economic emergency has only just begun," Mr Sunak told Parliament. "So our immediate priority is to protect people's lives and livelihoods."

In his statement to the House of Commons, Mr Sunak announced:

The chancellor's statement to lawmakers on Wednesday begins the British state's painful reckoning with the financial consequences of the pandemic, with some tough decisions on how to address a budget deficit ballooning toward a post-war high of £400 billion.

With the country on course for the worst slump in economic output in three centuries, and renewed lockdowns threatening further damage, the chancellor focused on support for jobs and the unemployed, ploughing tens of billions of pounds into infrastructure spending, and ensuring the healthcare system can cope with a resurgent wave of infections.

How Mr Sunak delivers on his task may set the tone for the ruling Conservative Party's approach to the fiscal legacy of the coronavirus. While the spending review isn't a tax event, Treasury-watchers were listening for signals about his plans to return the public finances to a more stable track in the long term, including hints at future tax rises.

The most noteworthy announcement in advance was the biggest uptick in defence spending in three decades: a four-year, £24 billion investment in the country's armed forces.

A new infrastructure strategy is expected to detail planned projects to deliver on £100 billion of projects pledged over the course of the five-year Parliament that started last December.

Mr Sunak also unveiled a new financial institution to help attract private money into such programmes.

The chancellor has found himself spending in a way that no Conservative chancellor would easily countenance. As of July, costs totalling £200 billion had been racked up or earmarked to tackle the virus and support jobs and businesses through the crisis.

More borrowing will be needed. Later on Wednesday, Britain's Debt Management Office was to announce almost £100 billion of extra issuance for the December-March period, taking the annual total to £482.8 billion, according to the median estimate in a Bloomberg survey of 12 primary gilt dealers. That's more than twice the previous record set during the financial crisis - a tally that would cause borrowing costs to spike if it weren't for the Bank of England's bond-buying programme that has helped to curb the yield on 10-year bonds by about 50 basis points.

The cut in foreign aid spending is likely to dismay some Conservatives who warned it will hamper renewed efforts to display Britain's global role just as Brexit takes effect. BLOOMBERG