The chancellor, Rishi Sunak, has warned that Britain is facing a “severe recession, the likes of which we haven’t seen” and lasting economic damage from the coronavirus pandemic. In a downbeat assessment of the country’s economic prospects after a sharp rise in unemployment benefit claims, the chancellor warned a Lords committee it was “not obvious there will be an immediate bounceback” from recession. The government’s lockdown controls to limit the spread of the virus brought the economy to an effective standstill, with Sunak saying: “I certainly won’t be able to protect every job and every business, we’re already seeing that in the data, and no doubt there will be more hardship to come.” The government had been hoping for a V-shaped recovery from the pandemic, but the chancellor said the “jury is out” on the “degree of long-term scarring” on the UK economy. He suggested that the outcome was uncertain because economists were “dealing with something unprecedented so economic forecasting is not as precise as it might normally be”. Sunak had suggested as recently as last month that Britain could “bounce back” quickly thanks to the government’s support measures and the nation’s “fundamentally sound” economy prior to the crisis. Speaking at the daily Downing Street press conference in mid-April, he said “we can recover quickly and strongly and get our lives back to normal”. Referring to relatively weak levels of growth in Europe as lockdown measures were gradually lifted elsewhere, he added: “In all cases it will take a little bit of time for things to get back to normal, even once we’ve reopened currently closed sectors.” Official figures earlier on Tuesday showed 856,500 people signed up for universal credit and jobseeker’s allowance benefits in April, driving up the overall claimant count by 69% in a single month. Economists said the figures would have been far higher without the Treasury’s furlough wage subsidy scheme. The emergency financial support unleashed by the Treasury, with a rapidly rising price tag worth tens of billions of pounds every month, is designed to minimise the lasting damage to the economy by helping companies to stay afloat and by keeping people in their jobs. However, Sunak warned that the depth of the Covid-19 recession and the length of time it could take for business activity to return to normal could hit the country’s productive capacity. “The longer the depth of the recession, I think everyone would agree – all economic forecasters and economists would agree – it is likely the degree of that scarring will be greater,” he said. About 8m jobs have been protectedthrough the government’s furlough scheme. But with the gradual reopening of the economy as lockdown controls are lifted over the coming months, the chancellor is preparing to scale back the support from the current level of 80% of workers’ wages and pass some of the £14bn-a-month cost of the scheme to employers. Sunak suggested he would reject requests for the 80% subsidy to be retained longer for sectors due to reopen last – including leisure and hospitality firms such as pubs, theatres and restaurants. He told the Lords committee: “I thought about a sectoral approach and in practice it would be very difficult to implement. “There’s an entire supply chain of those companies, which are in practice very hard to start to differentiate between those businesses.”