U.K. Virus Stimulus Exceeds Boost During Financial Crisis
U.K. Virus Stimulus Exceeds Boost During Financial Crisis
(Bloomberg) --
The U.K. has pledged more fiscal stimulus to fight the economic fallout from the coronavirus than during the global financial crisis a decade ago, underscoring the scale of the threat posed by the pandemic.
Prime Minister Boris Johnson’s government has allocated a total of almost 57 billion pounds ($66 billion) in direct support since the Budget on March 11, according to Treasury estimates and calculations by Bloomberg Economics.
The aid, which includes an unprecedented promise to pay the wages of employees at risk of losing their jobs, amounts to 2.5% of gross domestic product. That compares with around 2% in the 2008-09 crisis, when Gordon Brown’s Labour government brought in a temporary reduction in value-added tax and ramped up spending to shield the economy.
While Johnson has come under heavy criticism for his slow response to the spread of the virus, the U.K.’s economic action has set an example for coordination between monetary and fiscal policies. The latest measures announced by Chancellor of the Exchequer Rishi Sunak were praised as an attempt to prevent the crisis from causing mass unemployment.
The government has promised more help for Britain’s 5 million self-employed workers, who are not covered by the wage-subsidy program, meaning the cost of fiscal support is likely to rise further.
Rebound Seen
“In the current situation the costs of doing too much are smaller than doing too little,” said Dan Hanson of Bloomberg Economics. “If the government is able to fill the gap in support for the self-employed, we think the package of measures will give the economy a good chance of getting back on its feet quickly once the virus has passed.”
Bloomberg Economics said on Monday the economy is on course to shrink 9% between April and June, almost certainly making it the worst peacetime quarter for a century, and the blow could be even bigger if a prolonged lockdown is required.
While the stimulus is significant, “the difficulty in getting money to the right people and companies means, even after a sharp rebound, some demand weakness could linger,” Hanson and Jamie Rush of Bloomberg Economics wrote.
The government has committed a further 330 billion pounds in loan guarantees. The Bank of England is also playing its part, cutting interest rates to a record-low 0.1% and adding 200 billion pounds to its asset-purchase program.
©2020 Bloomberg L.P.