(Bloomberg) -- The U.K. is beginning to take what Prime Minister Boris Johnson calls “baby steps” toward reopening its economy from coronavirus lockdown. But behind the messages about what people can now do, all the signs are that the government is digging in for the long haul.
From Wednesday, people in England are able to spend unlimited time outdoors, including meeting one person they don’t live with. And people who can’t work from home are being encouraged to go to their jobs. In one significant regulatory shift, the real estate market has been reopened, with house moves once again permitted, and real estate agents allowed to open their offices and show buyers around homes.
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But there will be clear reminders things are very far from normal: Face masks are now encouraged in shops and on public transport. And announcements from the government Tuesday showed ministers now expect any return to normality to take months.
Chancellor of the Exchequer Rishi Sunak said the government’s furlough program, paying the wages of people whose employers have temporarily shut, will now run until at least October. That could add an extra 35 billion pounds ($43 billion) to its cost, bringing the total to as much as 84 billion pounds, according to Bloomberg Economics.
His announcement came the day before the U.K. announced grim growth figures for the first quarter, which showed the economy shrank 2% in the first three months of the year and a record 5.8% in March alone.
Reacting to the data, Transport Secretary Grant Shapps told BBC radio he expects the U.K. to enter a recession later in the year. “Technically of course two quarters would be required for a recession, but nonetheless I think it’s fairly clear that because most of the impact will be in the second quarter, we will be.”
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The Telegraph newspaper reported a leaked Treasury assessment about the cost of the crisis to the government. The “base case” saw the deficit, forecast at 55 billion pounds before the pandemic, rise to 337 billion pounds. The “worst case” scenario saw it hit 516 billion pounds. Shapps told LBC radio the report was “speculative at this stage.”
Some ministers in government are trying to signal a swifter return to normality. Jacob Rees-Mogg, Leader of the House of Commons, said Tuesday he wants to end the current virtual sittings, where most members of Parliament join via video link, “as quickly as possible” in June. Parliament “must set an example of how we move back gradually to a fully-functioning country again,” he said.
However, asking MPs to return to a cramped chamber and to vote by crowding through lobbies seems incompatible with the current advice of staying two meters away from other people.
In a sign of just how difficult a return to normal life will be until scientists find a way to deal with coronavirus, Shapps said that even if London’s transport system ran at full service levels, social distancing requirements would mean its capacity would only be 15% of what it usually is.
The extent of the health crisis in the country was exposed by figures from the Office for National Statistics showing that in the six weeks through May 1, there were 46,494 more deaths than the five-year average.
To economists, Sunak’s move was a clear signal that the government expects the crisis to go on for months.
“The hope of a one-and-done, short sharp shock appears to have been dispelled by the extension,” said Peter Dixon, an economist at Commerzbank AG. “It’s a recognition the recovery will be longer than has been anticipated. If the rebound is delayed, then 2020 numbers look an awful sight worse than they already do.”
(Updates with Shapp comments from sixth paragraph)
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