Government: UK economy 'to worsen before it gets better'

Warnings that more than 250,000 small businesses may be forced to close this year

Britain's Chancellor Rishi Sunak giving an economic update statement on in the House of Commons in London, Britain. EPA

British Chancellor of the Exchequer, Rishi Sunak, on Monday said the coronavirus-ravaged economy would worsen before it recovers amid warnings that more than 250,000 small companies could go broke this year.

"Coronavirus has already caused significant harm to our economy," Mr Sunak told Parliament.

He said total output was 6.1 per cent lower than before the health crisis erupted last year and sparked a historic recession.

"Even with the significant support we have provided, over 800,000 people have lost their job since February," Mr Sunak said.

"And while the new national restrictions are necessary to control the spread of the virus, they will have a further significant economic impact."

Mr Sunak said the Conservative government's stimulus measures have so far totalled more than £280 billion ($380bn).

But Britain's main opposition Labour party criticised the chancellor for failing to deliver new policy announcements.

"The purpose of an update is to provide us with new information not to repeat what we already know," Labour finance spokeswoman Anneliese Dodds said.

The government last week launched an extra £4.6bn package, including grants for retail, hospitality and leisure businesses, as it put the country into a fresh national lockdown.

At the heart of UK stimulus policy is the furlough scheme, which pays most of the wages for about 10 million private-sector workers and runs until the end of April.

Britain is facing a renewed surge of coronavirus cases that has seen more than three million people infected and more than 80,000 deaths in the past 12 months.

The government is pinning its hopes on a mass vaccination programme, which has so far seen about 2.4 million people inoculated.

But amid hopes of a return to normality in the coming months, one study suggested more than 250,000 small British businesses face bankruptcy this year without more state help, given the problems posed by the coronavirus and the trade fallout after Brexit.

"A record number of small business owners are planning to close their firms over the coming 12 months, putting the UK on course to lose more than a quarter of a million businesses," the Federation of Small Businesses estimated after surveying about 1,400 companies.

The federation said Mr Sunak's virus support measures did not "keep pace" with tightening lockdown restrictions.

Meanwhile, exporters were "feeling the strain as the new EU-UK trade deal beds in" after Britain's final exit from the EU single market and Customs union on December 31.

Federation national chairman Mike Cherry called on the government to look at how emergency debt facilities could help small businesses to survive.

And Mr Cherry urged the adoption of "transition vouchers" to help companies cope.

"Our exporters are trying to get across what a new EU-UK trade agreement means for them without the cash they need to make adjustments," he said.

"Direct funding to help them manage new obligations in the form of transition vouchers is urgently needed.

"This government can stem losses and protect the businesses of the future, but only if it acts now."