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Budget 2020: £30bn stimulus to offset Coronavirus shock

Budget 2020: £30bn stimulus to offset Coronavirus shock

Chancellor Rishi Sunak has launched a £5bn emergency response fund in response to the Coronaviirus, but warned that economic growth will be hit nonetheless.

The chancellor announced a package of measures to ease the impact of the Coronavirus, as part of a £30bn fiscal stimulus into the economy, in an attempt to boost growth. These include a package of measures for small businesses, as well as greater sick pay entitlements.

Mr Sunak said he would continue to meet the fiscal rules set out by his predecessor Sajid Javid - but only if the Coronavirus measures are not counted. He also announced a review of that fiscal framework for the autumn.

The chancellor acknowledged that growth this year would be impacted negatively by the virus, but said it would be temporary. Prior to the virus' emergence, latest forecasts from the Office for Budget Responsibility (OBR), announced today, had forecast 1.1 per cent growth this year - a fall from the previous prediction of 1.4 per cent. Growth forecasts for 2021 were raised from 1.6 per cent to 1.8 per cent, but cut by similar amounts in both 2022 and 2023.

Borrowing forecasts for the next five years have risen significantly. As a proportion of GDP, borrowing is now forecast to stand at 2.1 per cent in 2019/20, up from a forecast of 1.3 per cent a year ago. Figures will then rise above 2.1 per cent for each of the next four financial years. A year ago the OBR had predicted these proportions would fall below 1 per cent for each of those periods.

The figures, announced by the chancellor Rishi Sunak, in his budget this afternoon, come in the context of the UK economy having shown stagnant GDP growth of zero per cent over the past three consecutive quarters. 

The official announcement from the Office for National Statistics this morning stated that slowing demand in the motor trade was the major reason for the stagnation. Demand for traditional petrol and diesel cars has been hit by the rise of electric cars.

James Dowey, who runs the Liontrust Global Equity fund, and who is a former lecturer in economics at the LSE, claimed to FTAdviser that the pace and scale of the disruption in the economy makes traditional economic measures such as GDP less relevant.  

The measures announced by Mr Sunak came as the Bank of England announced it was cutting the base rate to 0.25 per cent, the joint lowest it has ever been, in response to the ongoing Coronavirus crisis.

Mr Dowey said the economic impact of the virus will impact both the supply and the demand side of the UK economy, presenting a particular challenge for policymakers.  

david.thorpe@ft.com

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