The UK economy is in need of a £164bn ($217bn) cash injection in the year 2021-22 to restart it fully after the COVID-19 pandemic and set it on course for recovery, according to new analysis.
The Institute for Public Policy Research (IPPR) has said that without an ambitious stimulus boost, the economy will still lag 7 percentage points behind pre-COVID levels next year. It has called this the “93 per cent economy.”
The think tank calculated, under the 93% economy, that a further 1 million people would be unemployed in April 2022, due to an unnecessarily slow recovery and lack of job support measures.
It found that borrowing more to set the economy moving faster will actually mean lower debt as a share of GDP than the more cautious approach being urged by some.
Carsten Jung, IPPR senior economist said: “Our call for a £164bn stimulus may sound large but, in fact, it is economically the right thing to do. It’s about 40% less than the government will have spent on the coronavirus crisis in the current fiscal year.”
The IPPR further warned that this was “no time to be timid,” adding that there has “never been a better moment to invest in the UK economy and welfare state.”
The cash boost will not only tackle the health crisis and stabilise the economy, it said, but also deliver climate investments needed to reach the UK’s net zero emissions target, and restore public services to their pre-austerity level by the end of the parliament.
Carys Roberts, IPPR Executive Director, said: “This tide of hardship will only swell without adequate support for the economy, including through ‘scarring effects’ that will make it harder for businesses and people to survive and thrive. Decisions taken today will determine whether businesses can recover, and the state and shape of the economy for years to come.
“But there is no ‘going back’ to the pre-pandemic economy, as if its course had merely been paused. Instead we should use government intervention now to build back the kinds of economic activity we really value, instead of pursuing only GDP.”
It comes ahead of the chancellor announcing this week's spending review. The IPPR urged Rishi Sunak to consider continued fiscal support during the “rescue phase,” aimed at supporting incomes and preventing otherwise viable businesses from closing.
Then, during the “reopening phase” in the second half of next year, he should promise support for overall demand and economic activity, the IPPR said.
Earlier this month it was revealed that the UK economy grew by a record 15.5% between July and September, the Office for National Statistics (ONS) said, showing a partial recovery for the UK economy before the second wave of COVID-19 hit.
The ONS said its initial estimate of GDP growth in the third quarter of 2020 was 15.5%. Economists had expected third quarter GDP to grow by 15.8%.
The first estimate showed the UK made progress in reversing the historic economic slump caused by COVID-19 at the start of the year. The third quarter figures was the largest leap in GDP ever recorded by the ONS, stretching back to 1955.
However, while the headline GDP number was encouraging, Britain’s economy still remains almost 10% below pre-pandemic levels. Growth also slowed throughout the third quarter.
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