UK economy faces ‘two decades of tax hikes and austerity to recover from coronavirus,’ ex-BoE economist warns
HOUSEHOLDS and businesses face the grim prospect of tax hikes and austerity to cut Britain's ballooning public deficit once the coronavirus crisis is over.
That's according to former Bank of England rate-setter Ian McCafferty who says Britain will be paying for action to save the economy for the next two decades.
⚠️ Read our coronavirus live blog for the latest news & updates
Mr McCafferty, who sat on the bank's Monetary Policy Committee (MPC) for six years until August 2018, told the PA news agency that the UK's recovery from coronavirus is likely to be slower and shallower than first hoped.
He cautioned that any upswing is set to be less steep than the sharp contraction - meaning previous hopes of a "V" shaped rebound in growth, or even a "U" shape, may be too optimistic.
"We will have to pay for the fiscal action that's been required - over the next ten to 20 years, fiscal policy will have to adapt," he said.
"Growth will not be sufficient on its own."
Give now to The Sun's NHS appeal
BRITAIN’s four million NHS staff are on the frontline in the battle against coronavirus.
But while they are helping save lives, who is there to help them?
The Sun has launched an appeal to raise £1MILLION for NHS workers. The Who Cares Wins Appeal aims to get vital support to staff in their hour of need.
We have teamed up with NHS Charities Together in their urgent Covid-19 Appeal to ensure the money gets to exactly who needs it.
The Sun is donating £50,000 and we would like YOU to help us raise a million pounds, to help THEM. No matter how little you can spare, please donate today here: .
Mr McCafferty, now a senior adviser at Oxford Economics and London Wall Partners, said the shape of the recovery could be more like a reverse "J".
He flagged concerns that even after some sectors of the economy begin to reopen, households may be reluctant to go out and spend, while businesses may also continue to hold back investment.
The UK economy is set to shrink at an unprecedented rate after business activity dived this month at the fastest pace on record.
A second quarter hit to the UK's GDP (gross domestic output) of 35 per cent, has been predicted by the Office for Budget Responsibility, while the unemployment rate could double to around 10 per cent.
A global recession could also be on the not too distant horizon with the International Monetary Fund (IMF) chief warning "it has already begun".
One member of the current MPC also said just last week it would be the worst economic slump for several centuries.
The bank has exhausted its ability to cut interest rates, having already taken them down to a new historic low of 0.1 per cent, but it is expected to unleash more quantitative easing (QE) - the printing of more money to go into the economy - at its next meeting in May.
The extra £200billion of QE announced as part of the bank's emergency measures have been the star of the show so far, according to Mr McCafferty.
More on coronavirus
Where the rate cut has limited ability to boost consumer and business spending amid the lockdown, Mr McCafferty says QE has the double benefit of boosting the economy by increasing the money supply and making it cheaper for the government to borrow.
"I would not be surprised to see more QE... and I think there is also more to come on the fiscal side," said Mr McCafferty.
The cost of actions to keep the economy on ice have been in sharp focus, with the independent fiscal watchdog estimating the budget deficit could soar to £273billion in 2020/21 - the largest single-year deficit since World War II.