Britain heads for sharpest economic slump of major economies in Covid-19 storm

Rishi Sunak, economy reaching lowest lows of the century

Britain will suffer the sharpest peak-to-trough economic slump of any major economy this year, rating agency Moody’s has warned, and ramp up national debt as a share of GDP by nearly a quarter.

Moody’s said the UK government’s latest £30bn (€33.5bn) stimulus package, announced this week, would aid a gradual economic recovery but add further pressure to the UK’s fiscal position.

“The UK’s public debt ratio will likely rise by 24 percentage points of GDP or more relative to 2019 levels,” a group of Moody’s top analysts wrote in a note.

“We forecast a contraction of 10.1% in the UK’s GDP for this year, but expect a gradual subsequent recovery on the back of the easing in lockdown measures, with growth rebounding to 7.1% next year,” Moody’s said.

Moody’s rates Britain Aa2 with a negative outlook following a series of cuts since the country voted to leave the EU in mid- 2016.

Britain is on course to take state borrowing to World War Two levels with £160bn of coronavirus emergency measures, though the government has said finances will return to a sustainable footing over the medium term.

Moody’s said high-frequency indicators suggested that economic activity has gradually begun to recover after reaching a trough in April when GDP is estimated to have contracted by just over 20%.

“Our forecast estimates a sharper peak-to-trough contraction for the UK than for any other G-20 economy, taking account of our view that lingering uncertainty around Brexit will hold back the recovery in the second half of the year.”

It added the country’s Autumn budget, which usually happens in the last months of the year, would be key to providing greater clarity on the UK’s future path of government indebtedness.

Meanwhile, British shoppers returned to the high street in June as the coronavirus lockdown eased, but overall numbers were much lower than normal for the time of year, an industry survey showed on Friday.

The monthly report from the British Retail Consortium trade body and market research firm ShopperTrak showed footfall was down 63% in annual terms in June, although this was 19 percentage points above May’s reading.

Non-essential stores were allowed to reopen on June 15 in England, but shopper numbers were still 53% lower than normal in the second half the month, compared with a 77% shortfall in the first two weeks when only essential stores were open.

“(The) UK recovery has been sluggish, especially compared with European standards, but retailers with stores remain hopeful that the reopening of hospitality will provide a welcome boost,” said BRC chief executive Helen Dickinson.

UK pubs and restaurants reopened last weekend, and on Wednesday finance minister Rishi Sunak said the UK government would fund discounts on eating out on Mondays, Tuesdays and Wednesdays in August. Reuters

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