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UK Chancellor Warns That the Economic Emergency Is Just Starting

Chancellor Rishi Sunak this week announced another huge investment to help deal with the coronavirus crisis. £55 billion will be pumped into the economy to try and tackle the UK’s biggest financial slump in more than three centuries, yet he has pointed out that this is just the start of the current crisis.  

The Full Extent of the Borrowing

The Chancellor confirmed that this year has seen a total of £394 billion borrowed to keep the country ticking over during lockdowns and other restrictions. This is the most that has ever been borrowed in a year, outside of wars.

Sunak also said that he was is going to have to keep on spending public money to save lives and ensure that as few livelihoods as possible are ruined. His new, one-year spending plan includes a huge increase in infrastructure spending. In fact, it is said to be the biggest increase in this area for more than 40 years.

More money will be spent on things likes railways, broadband upgrades and housing. A total of £100 billion will be needed next year on these areas and on the green initiatives that Boris Johnson has spoken of in the past.

Another chunk of funds will be allocated to help the unemployed find work. It is expected that by mid-2021 the total number of jobless Brits will reach 2.6 million, and Sunak’s £3 billion cash investment is designed to help lower this total.

Another £4 billion will be used in a levelling-up fund to boost local projects in areas where they are needed. With many companies now turning to international debt recovery to stay afloat, the next few months will be crucial.

The Reaction

The Chancellor pointed out that the health emergency “is not yet over” and that the financial emergency it has caused “has only just begun”. He then pointed out that the Office for Budget Responsibility (OBR) has forecast a contraction in the British economy of over 11% for this year.

The extension to the furlough scheme that sees it continue until next March has helped to protect 300,000 jobs, according to the OBR. Yet, they predict that it will be the end of 2022 before the economic losses are recovered, even if we see a period of good economic growth in that period.

The IFS think tank also pointed out that £40 billion of tax increases and spending cuts will be needed if the UK is to balance the books in the next couple of years. They predicted that the economy will perform more poorly than the earlier forecast from the OBR.

They believe that slow growth and sustained pressure on the NHS will see the public financial situation become worse than currently expected. The IFS think that the Chancellor will need to carry on paying out money to those affected by the crisis even after the 2021-2 financial year has ended.

Paul Johnson is the director of the IFS and he believes that the OBR’s prediction of just a 3% impact in the long term is “not great” but “not terrifying”. However, he stated that there are extra downside risks, like a no-deal Brexit, that could increase the damage to the economy.