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UK economy crumbling under coronavirus strain; questions mount over lockdown exit

LONDON (Reuters) - The United Kingdom’s economy is crumbling under the strain of the coronavirus lockdown and government borrowing is soaring to the highest levels in peacetime history, increasing pressure on the government to set out an exit strategy.

Prime Minister Boris Johnson, recuperating at his country residence after being seriously ill with COVID-19, is facing criticism from opposition politicians and some epidemiologists for reacting too slowly to the novel coronavirus outbreak.

With the number of deaths in hospitals hitting 18,738, ministers are working to roll out a mass testing and tracking programme to try to reduce the rate of transmission and possibly ease stringent measures that have all but shut the economy.

Ministers have been struggling to explain high death rates, limited testing and shortages of protective kit, and the reality of the damage to the world’s fifth largest economy hit home on Thursday.

“We are experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries,” Bank of England interest-rate setter Jan Vlieghe said.

The recovery, he said, was unlikely to be swift.

The IHS Markit/CIPS Flash UK Composite Purchasing Managers’ Index (PMI) fell to a new record low of 12.9 from 36.0 in March - not even close to the weakest forecast in a Reuters poll of economists that had pointed to a reading of 31.4.

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The UK will issue 180 billion pounds ($222 billion) of government debt between May and July, more than it had previously planned for the entire financial year.

The country’s debt mountain exceeds $2.5 trillion and its public sector net borrowing could reach 14% of gross domestic product this year, the biggest single year deficit since World War Two.

A Reuters poll of economists on Thursday pointed to a roughly 13% contraction in economic output in the current quarter, which would be the largest since records began after World War Two.

WAITING FOR A VACCINE

The government’s as yet unpublished strategy for unwinding from the lockdown is also under scrutiny. Deutsche Bank said the country’s limited testing capacity is a problem.

“The UK is lagging behind almost any medium to large economy globally when it comes to coronavirus tests,” Deutsche Bank’s Oliver Harvey said in a note to clients.

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Health Secretary Matt Hancock has promised to get 100,000 people per day tested by the end of April. Some 23,560 tests were carried out on April 22 - the latest day for which data is publicly available, and Hancock said Britain now had a testing capacity of 51,000.

Britain’s testing coordinator, John Newton, said on Thursday the country was on track to meet its target, and Hancock added that the government would expand coronavirus testing to all those considered key workers, such as teachers, government employees and delivery drivers.

Previously, only healthcare employees and those working in nursing homes have been able to get tests.

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“We can make it easier and faster and simpler for an essential worker in England who needs a test to get a test,” Hancock told a news conference. “This all applies to essential worker households too.”

He said 583,496 tests have been carried out so far in the United Kingdom, and suggested a large-scale test, track and trace programme to keep transmission rates low could open the way for some easing of the social distancing measures.

“Test, track and trace, done effectively, can help to suppress the transmission in a way that allows you then to have lesser social distancing rules,” Hancock told a news conference.

But some kind of restrictions on everyday life are likely to be needed for the rest of the year due to the time needed to develop and roll out vaccines or find a cure, the government’s chief medical adviser, Chris Whitty, said on Wednesday.

Scientists in Britain began clinical trials of a potential COVID-19 vaccine on Thursday as other vaccine developers across Europe also stepped up work on their own experimental shots against the disease caused by the new coronavirus.

Additional reporting by David Milliken, Estelle Shirbon, Elizabeth Piper, Andrew MacAskill, Alistair Smout, Kate Kelland, William Schomberg, Paul Sandle, Costas Pitas and Kylie MacLellan; Editing by Michael Holden, Frances Kerry, Emelia Sithole-Matarise, Alexandra Hudson and Stephen Addison

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