If we face the worst recession since 1706, the government must do all it can to help the recovery

Chancellor Rishi Sunak intervened to protect the economy during the lockdown. He will have to do that again after it’s lifted amid Threadneedle Street’s prediction of a 14 per cent fall in GDP, says James Moore

A half-assed John McDonnell impersonator? Chancellor Rishi Sunak (EPA)

Welcome to the economic apocalypse. No longer will future downturns be described as the “worst since the Great Depression”. The coronavirus crisis looks primed to beat even that horror.

The Bank of England’s latest scenario envisages the UK economy shrinking by 14 per cent over the course of this year, which is stunning.

Reports on economic numbers almost always contain a “since” to give the reader a point of comparison against which to judge the dry data. The one the Bank’s projecting does have one. Drum roll please: it’s 1706.

What’s striking is how the forecasts have deteriorated over the last few weeks. Back in March, for example, Goldman Sachs came out with a prediction of minus 7.4 per cent for the UK this year, which equates to a tropical storm when compared to the Hurricane Katrina that’s now being modelled.

But even though there are more nasties in the small print (business investment down 20 per cent, unemployment set to double) and the Bank’s governor Andrew Bailey talked about no quick return to normality, Threadneedle Street still thinks there will be a relatively rapid bounce back.

Under its “illustrative scenario” the UK grows by 15 per cent next year. By comparison, the Goldman Sachs research I referred to at the end of March predicted 7.3 per cent growth in 2021. So we’re going into a deeper hole, but the floor at the bottom is bouncier.

That said, even 15 per cent growth next year won’t get us back what we’ve lost. Does it mean the Bank is offering us a straw to clutch at? Up to a point. Much depends on how policymakers handle the next phase. That incudes those working in the field of public health, given the virus is going to have its say too.

The last couple of months would have been even worse had Rishi Sunak not decided to impersonate the most spendthrift Labour chancellor we’ve never had.

The Job Retention Schemes (JRS), cheap loans for businesses, chivvying the banks into agreeing payment holidays, even making it (a little bit) easier to access universal credit.

These aren’t quite what a Labour chancellor would actually have done. They would have made more effort to assist the poorest in society. You can start with universal credit.

So Sunak’s John McDonnell impression is a half-assed one at best. But he still deserves credit for acting faster than anyone would have expected. It’s hard to imagine his more traditionally Tory-minded predecessor Said Jajvid being as aggressive.

With the government poised to begin reopening the economy, however, Sunak is preparing to wind down the JRS, by a distance his most effective (but also his most costly) policy.

Maybe with good reason. But for the bounce back to be realised, he’s going to have to carry on surprising people like me. Returning to the old-school Tory “hands-off” approach isn’t going to work.

He will, for example, need an industrial strategy, and a proper one, not the half-baked impression of one cooked up by the May administration.

Even if the UK climbs back more rapidly than expected, some sectors are going to struggle for a long time to come. The car and aerospace industries, for example. Some may be critically endangered without some form of assistance.

That doesn’t mean losing sight of the “moral hazard” of, say, bailing out airlines months after they showered shareholders with dividends. It might mean taking into consideration a company’s tax status before offering support.

The UK seems minded to take a cautious approach, telling businesses with dodgy credit histories that there is another method of financing – equity financing – that they might like to take advantage of before knocking on doors, cap in hand, in the hopes of securing a blank cheque.

There’s certainly a debate to be had on the type of intervention to engage in, and how it’s best delivered to ensure the maximum benefit to the economy, while protecting the taxpayer’s interest.

But that can occur after the principle has been established.

The government moved itself during the last big economic crisis, the 2007-08 financial crisis, and some of the pitfalls from the approach taken can be seen (angering the public by letting bankers resume normal service would be one). But the important point is that it moved.

With the current economic crisis worse by an order of magnitude, it needs to be ready to do so again.