Rishi Sunak is preparing to deliver next week’s budget with the British economy at a pivotal moment before lockdown is relaxed, with businesses and workers still under severe strain, according to a Guardian analysis.

After the prime minister set out the government’s roadmap for dismantling Covid restrictions over four key stages this spring, the chancellor is expected to use his 15th major tax and spending announcement in less than a year on Wednesday to pledge further financial support to steer the economy towards recovery.

It comes as Britain is suffering the worst economic damage since the pandemic began and with unemployment continuing to rise, although there are hopes for a swift recovery later this year fuelled by rapid progress administering the Covid vaccine. But with months of restrictions to come, business leaders warn Britain stands at a crossroads with urgent further government support required.

Calling next week’s budget the most important in living memory, Tony Danker, the director general of the CBI, urged the chancellor to extend support for struggling firms and their workers and do more to boost companies in sectors of the economy subject to the longest lockdown controls.

Writing in the Guardian, the leader of Britain’s foremost business lobby group warned the task of protecting the economy from Covid remained unfinished. “Business support measures have been second to none, but now is not the time to bring them to a shuddering halt, particularly for those sectors that still have a way to go,” he said.

“The chancellor must finish what he started: doing whatever it takes to back UK business. The more businesses – the more jobs – that we can see through the crisis, the faster we can snap the economy back into shape.”

Boris Johnson sets out four-step plan to ease lockdown in England – video
Boris Johnson sets out four-step plan to ease lockdown in England – video

Since the onset of the pandemic, the Guardian has chosen eight economic indicators, as well as the level of the FTSE 100, to track the impact of coronavirus on jobs and growth, and the measures used to contain it. Faced with the deepest global recession since the Great Depression, the Covid crisis watch also monitors how the UK is faring compared with other countries.

Official figures confirmed this month that Britain suffered among the worst economic downturns in the western world last year, with a 9.9{540ccc4681f92a8237c705b0cdebbb9da373ec200da159e6cc1fd9f393be00be} drop in gross domestic product (GDP) in 2020 – the biggest annual plunge since 1709.

Having recorded the highest death toll in Europe from Covid-19, it was the worst in the G7, exacerbated by a slower entry into lockdown last year and later exit, as well as a higher proportion of social spending – such as in hospitality and retail, hit hardest by the pandemic – than in other major countries. However, the UK fared better than some other wealthy countries including Spain, where the economy collapsed by 11{540ccc4681f92a8237c705b0cdebbb9da373ec200da159e6cc1fd9f393be00be} last year.

However, a double-dip recession has been avoided after companies adapted to the second lockdown and took advantage of looser Covid restrictions in the run-up to Christmas before the third national shutdown was imposed.

There are also signs of resilience this month from a recovery in business activity in February, despite the continued pressure of lockdown, while mobility levels have risen slightly as more people leave their homes as Covid infections gradually fall.


How England’s Covid lockdown will be lifted


Step 1, part 1

All pupils and college students return fully.
People can meet one other person outside, not just for exercise. Care home residents can receive one regular, named visitor.
The “stay at home” order will otherwise stay in place.

Step 1, part 2

Outdoor gatherings allowed of up to six people, or two households if this is larger, not just in parks but also gardens.
Outdoor sport for children and adults will be allowed.
The official stay at home order will end, but people will be encouraged to stay local.
People will still be asked to work from home where possible, with no overseas travel allowed beyond the current small number of exceptions.

Step 2

The official outline plan states that the next steps will rely on data, and the dates given mean “no earlier than”. In step two, there will be a reopening of non-essential retail, hair and nail salons, and public buildings such as libraries and museums.
Most outdoor venues can open, including pubs and restaurants but only for outdoor tables and beer gardens. Customers will have to be seated but there will be no need to have a meal with alcohol.

Also reopening will be settings such as zoos and theme parks. However, social contact rules will apply here, so no indoor mixing between households and limits on outdoor mixing.
Indoor leisure facilities such as gyms and pools can also open but again people can only go alone or with their own household.
Reopening of holiday lets with no shared facilities, but only for one household.
Funerals can have up to 30 attendees, while weddings, receptions and wakes can have 15.

Step 3

Again with the caveat “no earlier than 17 May”, depending on data, vaccination levels and current transmission rates.

Step 3 entails that most mixing rules are lifted outdoors, with a limit of 30 people meeting in parks or gardens.
Indoor mixing will be allowed, up to six people or, if it is more people, two households.
Indoor venues such as the inside of pubs and restaurants, hotels and B&Bs, play centres, cinemas and group exercise classes will reopen. The new indoor and outdoor mixing limits will remain for pubs and other hospitality venues.

For sport, indoor venues can have up to 1,000 spectators or half capacity, whichever is lower; outdoors the limit will be 4,000 people or half capacity, whichever is lower. Very large outdoor seated venues, such as big football stadiums, where crowds can be spread out, will have a limit of 10,000 people, or a quarter full, whichever is fewer.
Weddings will be allowed a limit of 30 people, with other events such as christenings and barmitzvahs also permitted.

This will be the earliest date at which international holidays could resume, subject to a separate review.

Step 4

No earlier than 21 June, all legal limits will be removed on mixing, and the last sectors to remain closed, such as nightclubs, will reopen. Large events can take place.

Peter Walker Political correspondent

Average household savings have risen during lockdown as many people cut back on spending on travel, shopping and eating out while working from home. According to Andy Haldane, the chief economist at the Bank of England, the savings glut means the economy is about to turn “a decisive corner with enormous amounts of pent-up financial energy waiting to be released, like a coiled spring”.

Guardian morning business email sign-up

However, there is uncertainty over how much will be spent as the economy reopens and confidence takes time to recover amid the risk of new Covid variants, a new wave of infections and international travel controls. Savings have also been concentrated among higher-income households as poorer workers bear the brunt of the economic damage, threatening to exacerbate inequality coming out of the crisis.

Younger workers, the self-employed and those in more precarious hospitality and retail jobs falling out of work has also driven up unemployment to 5.1{540ccc4681f92a8237c705b0cdebbb9da373ec200da159e6cc1fd9f393be00be} in the three months to the end of December. With about 4.5 million people furloughed during the latest lockdown, business leaders, unions and Labour are calling for Sunak to extend the support, warning of a tidal wave of job losses without action.

The chancellor is being urged to spend £100bn at the budget in a mix of short-term economic support and long-term investment to bolster Britain’s recovery, despite an anticipated £382bn hole in the public finances.

Sunak has warned that the biggest increase in the budget deficit in peacetime will require “hard choices” on tax and spending to be taken. However, the Resolution Foundation thinktank said extending emergency support was necessary in line with the new timetable for easing public health restrictions – including the furlough scheme remaining in place until the summer, and targeted grants for the worst affected sectors like hospitality.

James Smith, a research director at the Resolution Foundation, said: “That [£100bn] is the scale of ambition needed to increase the chances that Britain sees a strong recovery from its pandemic-induced slump, and to ensure the recovery reaches firms and families across the UK.”