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The “economic emergency” caused by Covid-19 has only just begun, according to chancellor Rishi Sunak, as he warned the pandemic would deal lasting damage to growth and jobs.

 

Official forecasts now predict the biggest economic decline in 300 years.

 

The UK economy is expected to shrink by 11.3% this year and not return to its pre-crisis size until the end of 2022.

 

Government borrowing will rise to its highest outside of wartime to deal with the economic impact.

 

The government’s independent forecaster, the Office for Budget Responsibility (OBR) expects the number of unemployed people to surge to 2.6 million by the middle of next year.

 

It means the unemployment rate will hit 7.5%, its highest level since the financial crisis in 2009.

 

However, fewer jobs are expected to be lost than predicted this summer.

 

Setting out his Spending Review detailing how much would be spent on public services, Mr Sunak said the government was dealing with an “economic emergency”.

 

He added: “That’s why we have taken, and continue to take, extraordinary measures to protect people’s jobs and incomes.”

 

The government has subsidised the wages of employees unable to work due to the pandemic, in an effort to protect jobs.

 

It said extending these schemes to next March meant 300,000 fewer people would be out of work.

 

What about public sector pay?

 

Mr Sunak confirmed that around 1.3 million public sector workers – excluding some NHS staff and those earning less than £24,000 – will have their pay frozen next year.

 

The chancellor said he could not justify an across-the-board increase when many in the private sector had seen their pay and hours cut in the crisis.