Unemployment caused by the coronavirus crisis could in months be worse than during the 1930s Great Depression, a former Bank of England official has warned.
David Blanchflower, who was part of the Bank during the 2008 financial crisis, said unemployment is rising at the fastest rate in living memory as job losses mount around the world and in the UK.
He warned that there has never been a ‘concentrated business collapse’ on the scale seen in recent weeks as the Government forced all non-essential firms to close.
Unemployment caused by the coronavirus crisis could in months be worse than during the 1930s Great Depression, a former Bank of England official has warned
In the last two weeks of March, 10 million people in the US applied for unemployment benefits, while in the UK there were grim warnings of the jobless total hitting 2.75million by June.
During the Great Depression, unemployment hit 24.9 per cent in the US and 15.4 per cent in the UK, over several years.
But Professor Blanchflower said unemployment in the UK could rapidly rise to more than 6million people – which is around 21 per cent of the entire workforce.
David Blanchflower said unemployment is rising at the fastest rate in living memory
This was based on analysis of US job market figures suggesting unemployment could peak at 52.8million, which is around 32 per cent of the workforce.
Professor Blanchflower, who was a member of the Bank of England’s interest rate-setting monetary policy committee during the financial crisis in 2008, was writing in The Guardian.
He wrote: ‘There has never been such a concentrated business collapse.
‘The government has tried to respond but it has no idea of the scale of the problem it is going to have to deal with.
‘We make some back-of-the-envelope calculations and they are scary,’ he added.
Mr Blanchflower, who is now a professor of economics at Dartmouth College in the US, was making his assessment alongside David Bell, an economist at the University of Sterling.
They warned that the collapse in business activity amid the coronavirus lockdown, along with the accompanied rise in unemployment, looked as though it was at least 10 times faster than in the recession following the 2008 financial crisis.
Despite acknowledging the support pledged to businesses by the Government, including a promise to pay 80 per cent of salaries of workers furloughed by firms, the pair warned that unemployment would still soar.
Professor Blanchflower warned there has never been a ‘concentrated business collapse’ on the scale seen in recent weeks as the Government forced all non-essential firms to close. Pictured: Fast food outlet Subway and Greggs seen with their shutters down in Bristol last week
They added that even once the crisis has subsided, it is unclear how quickly unemployment will reduce.
The Great Depression began after the stock market crash of October 1929, which sent Wall Street into a panic and wiped out millions of investors.
Over the next several years, consumer spending and investment dropped, causing steep declines in industrial output and employment as failing companies laid off workers, especially in key industries such as mining and farming.
By 1933, when the Great Depression was at its most severe, some 15 million Americans were unemployed and nearly half the country’s banks had failed.
Professor Blanchflower wrote: ‘There has never been such a concentrated business collapse. ‘The government has tried to respond but it has no idea of the scale of the problem it is going to have to deal with.’ Pictured: A deserted Regent Street in London on Thursday
The stark warnings from Professor Blanchflower and Professor Sterling came as business activity in Britain and the EU plunged to the lowest level seen in decades, according to snapshots from the purchasing manager’s indices (PMI).
They are based on surveys of business activity.
According to March data, the US economy shed 701,000 jobs, which is far more than the 100,000 fall which had been expected by economists.
The unemployment rate also rose from 3.5 per cent to 4.4 per cent in February.
The Great Depression began after the stock market crash of October 1929, which sent Wall Street into a panic and wiped out millions of investors before spreading around the world. Pictured: Ship workers march from Jarrow to Parliament to protest at unemployment in 1936
Last week, Michael Gove hinted at looming austerity amid grim warnings of a 10 per cent hit to GDP.
The Cabinet minister said it was right to put the UK into lockdown to limit the spread of the disease, even though it meant spiralling UK debt, as you cannot ‘put a price on lives’.
But he said the massive hole left in the country’s finances by rescue packages for workers and businesses will need to be paid off ‘in due course’.
The tough message came as forecasters said the impact on UK plc from coronavirus will be many times greater than from the credit crunch.
Investment firm Nomura expects an unemployment rate of 8 per cent in the next quarter, up from just 3.9 per cent in January, according to the Sunday Times.
That will spark a huge increase in the cost of benefits for the government, putting the finances under more pressure.