How coronavirus lockdown is going to cripple the economy

Britain suffered the deepest economic slump on record this month as the government's lockdown to limit the spread of coronavirus forced businesses to close and workers to stay at home.

Leisure and service sectors have taken a particularly hard hit, as pubs, bars and restaurants close, and consumers stay at home.

The closure of businesses as well as the mountain of borrowing it's clear Britain is bracing for ballooning public debt from mammoth coronavirus emergency measures.

It comes as Chancellor Rishi Sunak overshot the Government’s full-year borrowing target after the highest March figure for four years.

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The Office for National Statistics (ONS) said public sector borrowing - excluding banks owned by the state - jumped £9.3 billion to a higher-than-forecast £48.7 billion in the financial year to March 31.

Borrowing surged to its highest March level since 2016 last month, at £3.1 billion – compared with an £891 million surplus a year earlier.

The March hike saw borrowing for the full year come in higher than the £47.4 billion forecast by the independent fiscal watchdog, the Office for Budget Responsibility (OBR).

But the ONS warned the figures do not yet take into account the expected "significant" impact of Covid-19 Government action launched late last month, and said the March figure is likely to be revised higher in the coming months.

However the Bank of England said early indications suggest we could be living through the worst economic slump for several centuries.

Credit: PA Graphics/Source - ONS

Economist Gertjan Vlieghe, who sits on the central Bank’s Monetary Policy Committee (MPC), also explained the impact from the Covid-19 pandemic was dramatically hitting some sectors over others in ways never seen before.

He added: "The economy’s potential is severely disrupted at the moment but, once the pandemic is over, and other things equal, in principle it should return approximately to the pre-virus trajectory."

His speech sets out some of the Bank’s views on the economic impact from the virus in the UK, with a fuller update next month.

Mr Vlieghe said: “Based on the early indicators, and based on the experience in other countries that were hit somewhat earlier than the UK, it seems that 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 MPC member Gertjan Vlieghe said certain sectors were suffering more than others. Credit: PA

He added: “This is therefore a highly asymmetric shock, hitting some sectors in the economy drastically, while leaving other sectors financially little affected, and some even positively affected.

“To some extent, economic downturns always hit different sectors somewhat unevenly, but the current experience is much more dramatic.”

His warnings follow similar statements from Governor Andrew Bailey, who said earlier this week that he would caution against lifting any lockdown prematurely in an attempt to improve the economy.

Mr Vlieghe explained why state support was vital to limit knock-on effects to the entire economy, citing households who cut their spending on non-essentials due to large falls in income.

Coronavirus: Everything you need to know