LONDON (Reuters) - Britain will borrow almost 400 billion pounds in the current financial year to pay for the massive coronavirus hit to its economy, finance minister Rishi Sunak said on Wednesday, taking the budget deficit to its highest since World War Two.
The world’s sixth-biggest economy is set to shrink by 11.3% in 2020, its biggest contraction since the early 1700s, before growing by 5.5% in 2021, Sunak said as he announced a one-year spending plan.
“Our health emergency is not yet over. And our economic emergency has only just begun,” Sunak told parliament. “So our immediate priority is to protect people’s lives and livelihoods.”
Announcing the latest forecasts from the Office for Budget Responsibility (OBR), Sunak said public borrowing was set to soar to 394 billion pounds ($526 billion) in the current 2020/21 financial year.
That was equivalent to 19% of gross domestic product, the highest ever during peacetime.
In the previous 2019/20 fiscal year, which ended as the country began to be hit by the COVID-19 pandemic, borrowing came in at just over 56 billion pounds, or 2.5% of GDP.
Sunak has rushed out emergency spending and tax cuts to offset the crisis, including a recent extension of the government’s centrepiece jobs protection scheme.
In August, the OBR said it expected borrowing to total 372.2 billion pounds this year, or 18.9% of GDP.
Sunak has previously said that now is not the time to start reining in borrowing sharply, with the economy likely to shrink again in the fourth quarter of 2020 after the latest coronavirus restrictions on businesses.
He recently extended the jobs protection plan until the end of March, adding to his 200 billion pounds of emergency spending and tax cut measures.
Sunak said the cost of the fight against coronavirus was now estimated at 280 billion pounds this year.
Nearly 56,000 Britons have died from COVID-19, the highest death toll in Europe.
Britain is also facing the risk of a trade shock in less than six weeks’ time when its post-Brexit transition deal is due to expire. No new trade agreement has yet been reached with the European Union.
Sunak has said he might be able to focus on fixing the huge hole in the public finances -- possibly through tax rises -- by the spring, if there is progress on COVID-19 vaccines and the government’s test-and-trace programme.
He was expected to announce extra investment to ease a backlog in the health system, counter a surge in unemployment and build new infrastructure in his one-year Spending Review.
($1 = 0.7490 pounds)
