The U.K. government is set to ramp up borrowing Wednesday, confronting the worst economic backdrop since the financial crash as the coronavirus continues its spread unchecked.
The outbreak is overshadowing what was meant to be Prime Minister
That firefighting was highlighted early on Wednesday when the Bank of England unexpectedly cut interest rates and announced measures to help keep lending flowing.
The unfolding crisis, which has killed about 4,000 people around the world and convulsed financial markets, has also forced Chancellor of the Exchequer
Budget rules designed to keep spending in check are set to be eased, allowing a big increase in borrowing.
Sunak’s statement will be announced to a packed House of Commons at 12.30 p.m.
The outlook for the British economy has deteriorated since the Office for Budget Responsibility last produced forecasts a year ago, with implications for tax revenue and spending.
The fiscal watchdog is expected to bring its 2020 growth estimate closer into line with the 1% consensus of private-sector economists. But even that will be out of date. It completed its baseline estimates weeks ago, before it was clear how quickly the virus would spread.
Sunak has left little doubt about the scale of the
Other measures may include tax forbearance for companies facing cash-flow problems and help for workers on flexible contracts who are forced to take sick leave. The government is also pressing ahead with a promised 2 billion-pound payroll tax cut which will benefit the majority of workers.
The central bank is already bolstering the effort with its own levers, which included a 50 basis-point rate cut.
At risk is the key fiscal rule that Sunak inherited from his predecessor
Sunak may try to meet the rules by reclassifying some education spending as “investment.” But given the circumstances, he could reasonably argue that there’s a strong case for easing them temporarily.
The centerpiece of the budget was meant to be a review detailing plans to increase infrastructure spending by 100 billion pounds over the next five years. Publication has been delayed, but the Treasury said Tuesday Sunak would pledge “hundreds of billions of pounds” for infrastructure,
Whatever the actual number, borrowing will nonetheless rise strongly, largely due to a huge increase for government departments already pledged by Johnson. The OBR may increase its 2020-21 budget-deficit forecast by almost 40% to 55 billion pounds, or 2.5% of GDP, says HSBC Senior Economist
But with investors seeking haven assets amid the current crisis, even a big increase in bond sales is unlkely to reverse the unprecedented rally in sovereign debt. Yields on
(Updates with BOE rate cut in third pargraph)
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