UK economy crumbles under Covid-19 strain

London

THE United Kingdom's economy is crumbling under the strain of the coronavirus lockdown and government borrowing is soaring to the highest levels in peacetime history, increasing pressure on the government to set out an exit strategy.

Prime Minister Boris Johnson, recuperating at his country residence after being seriously ill with Covid-19, is facing criticism from opposition politicians and some epidemiologists for reacting too slowly to the novel coronavirus outbreak.

Ministers are already struggling to explain high death rates, limited testing and shortages of protective kit, as the grim reality of the damage to the world's fifth largest economy hit home on Thursday.

"We are experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries," Bank of England interest-rate setter Jan Vlieghe said. The recovery, he said, was unlikely to be swift.

The IHS Markit/CIPS Flash UK Composite Purchasing Managers' Index (PMI) fell to a new record low of 12.9 from 36.0 in March - not even close to the weakest forecast in a Reuters poll of economists that had pointed to a reading of 31.4.

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The UK will issue £180 billion (S$317 billion) of government debt between May and July, more than it had previously planned for the entire financial year.

The country's debt mountain exceeds US$2.5 trillion and its public sector net borrowing could reach 14 per cent of gross domestic product this year, the biggest single year deficit since World War II.

The government's as yet unpublished strategy for unwinding from the lockdown is also under scrutiny.

Deutsche Bank said the country's limited testing capacity is a problem.

"The UK is lagging behind almost any medium to large economy globally when it comes to coronavirus tests," Deutsche Bank's Oliver Harvey said in a note to clients. "This will materially impact the government's ability to pursue a 'test and trace' approach when it comes to easing the lockdown."

Health Secretary Matt Hancock has promised to get 100,000 people per day tested by the end of April, though just 22,814 tests were carried out on April 21 - the latest day for which data is publicly available. REUTERS