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Britain’s economic recovery from the coronavirus pandemic has come to a “standstill” as a result of the second wave of the virus and tighter government restrictions, a senior Treasury official warned.
Charlie Bean, a former Bank of England deputy governor who sits on the government’s budget accountability committee, said a rapid upturn in the lockdown earlier this year had stalled in early fall amid a surge in coronavirus cases.
Responding to questions from MPs on the Commons Treasury committee, the former Bank’s chief economist said: “It is reasonable to think that, at the very least, this is going to halt the recovery for a while.”
Bean, a member of the Office of Budgetary Responsibility, said good news about the pace of the recovery had given way to more worrying updates as fall approached, with high-frequency indicators of business and social activity indicating a slower rebound.
“It is reasonable to suggest that there will be a pause in recovery,” he said. “I think it’s very difficult to know how long and how potentially deep that is at this stage, until we see how effective the measures are to get back under control of the resurgence of cases. You have to recognize the uncertainty ”.
The warning comes as the OBR prepares new estimates for the economy and government finances, which will be released late next month following a request from Rishi Sunak.
Speaking days after the chancellor warned that “difficult decisions” would be necessary to reduce record levels of national debt, Bean said fixing public finances was not a priority as Britain faced the continuing risks of the pandemic.
“I think it is worth saying that in the current conjuncture one should not think that there is great urgency to close the deficit,” he said. “But as one moves beyond the emergency, then it will be appropriate to stabilize public finances and potentially begin to build fiscal space to recognize that there will be future negative shocks ahead.”
However, the new director of the OBR, Richard Hughes, said that public finances had become riskier since the start of the pandemic due to a sharp increase in debt.
The UK’s national debt has risen to more than £ 2 trillion, as spending increases to ease the economic fallout from the crisis. It is the equivalent of 102% of gross domestic product, the highest level since the 1960s.
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During the first five months of the financial year, the budget deficit, the difference between government spending and tax revenue, has risen to almost £ 174bn, more than three times the £ 55.8bn loaned last year.
Hughes, who replaced Robert Chote earlier this month, said that the rapid growth of public debt and a change in its structure had made the country more sensitive to movements in interest rates.
Although borrowing costs have fallen to record levels, making it cheaper for the government to pay off its debts, Hughes said that a rise in interest rates in global bond markets would raise the amount of money the government paid for your interest payments on the debt.
“There are reasons for us to be more concerned about the level of debt due to the sensitivity to interest rate shocks,” he said.
