UK announces the largest peacetime budget ever

Commuters will cross London Bridge on Monday, November 2, 2020, facing Tower Bridge, London, UK.

Jason Alden | Bloomberg | Getty Images

London – The UK announced on Wednesday the highest level of peacetime borrowing ever as the coronavirus epidemic is projected to cause the biggest drop in economic output in 300 years.

The UK economy is projected to shrink by 11.3% in 2020, according to the Office of Fiscal Responsibility (OBR), before growing by 5.5% in 2021 and 6.6% in 2022, as follows: in each case it would increase by 2.3%, 1.7% and 1.8%. years.

GDP (gross domestic product) is not expected to return to pre-crisis levels in the fourth quarter of 2022, and in 2025 the economy will be 3% smaller than expected in the government’s March budget.

The OBR also forecast that borrowing is expected to reach a total of £ 394 billion ($ 526 billion) this year, or 19% of GDP, the highest level of peacetime, and then to 164 billion in 2021 and 105 billion in 2022. 3 and around £ 100 billion, 4% of GDP will remain for the rest of the forecast period.

After eliminating the temporary effects of the Bank of England’s asset purchase program, core debt is projected to reach 91% of GDP this year, rising steadily in 2025/6 to 97.5%.

In a spending review on Wednesday, British Finance Minister Rishi Sunak announced £ 280bn in public spending to guide the country through the aftermath of the pandemic.

Next year, this includes £ 18bn for testing, personal protective equipment and vaccinations, £ 3bn to support National Health Service (NHS) rehabilitation, £ 2bn for transport, £ 3bn for local councils and £ 250m for treatment for homelessness. An additional £ 2.6 billion will be given to devolved administrations in Scotland, Wales and Northern Ireland as part of the £ 55 billion spending in 2021.

“These costs are high, the costs of inaction would have been much higher, but this situation is clearly unsustainable in the medium term,” the lower house told Sunak on Wednesday.

“We could only act as it was because we were in this crisis with strong public finances, and once the economy recovered, it was our responsibility to return to a sustainable fiscal position.”

Prior to his release, Prime Minister Boris Johnson’s spokesman told reporters that OBR’s predictions would be “sobering” but “the costs would have been much higher” if the government had not taken the chosen course of action in the fight against the pandemic.

By Wednesday morning, the UK had recorded more than 1.5 million Covid-19 and 55,935 deaths, according to data compiled by Johns Hopkins University. England is currently short-circuited until December 2 to stop a second wave of infections, after which the nationwide level system will be restored.

Preliminary data from the National Bureau of Statistics (ONS) earlier this month showed the UK economy grew by 15.5% in the third quarter, the widest quarterly expansion since the start of the record, after a record 19.8% in the previous quarter. fell by%.

By the end of the year, however, activity is expected to hit another hit. According to the ONS, GDP (gross domestic product) will remain 9.7% below the level seen at the end of 2019.

Unemployment will peak next year

To avoid a sudden spike in unemployment, the government has already announced an extension of its furlough system until the end of March.

In a statement, Sunak backed the government’s economic response, stressing that the scheme “protected jobs, supported incomes and helped businesses surface.”

However, the OBR forecasts that unemployment will rise to 7.5% in the second quarter of 2021, or 2.6 million people, and then fall steadily to 4.4% by the end of 2024.

Sunak announced an additional £ 3bn on Wednesday to the Department for Work and Pensions (DWP) to implement a “three-year restart program” aimed at helping more than 1 million people who have been unemployed for more than a year find work.

Investment in infrastructure will amount to £ 100 billion in 2021, he announced to Sun, an increase of £ 27 billion from the previous year.

In her response to the spending review, Anneliese Dodds, Labor’s shadow finance minister, criticized Sunak for failing to mention Brexit and the UK’s imminent deadline for a free trade agreement with the European Union.