Chancellor of the Exchequer Rishi Sunak warned the UK will suffer its deepest recession in more than 300 years as a result of the coronavirus pandemic, with 2.6 million unemployed, as he set out government spending plans.
“Our health emergency is not yet over and our economic emergency has only just begun,” Sunak told Parliament. “So our immediate priority is to protect people’s lives and livelihoods.”
In his statement to the House of Commons, Sunak announced:
- A pause to pay rises for public sector workers in non-health roles
- An increase in the National Living Wage to 8.91 pounds ($11.89) an hour
- The economy is expected to contract 11.3% this year, the biggest drop in more than three centuries
- That hit won’t be recovered until later 2022, while long-term scarring means the economy will be around 3% smaller in 2025 than expected in March
- The UK is forecast to borrow a total of 394 billion pounds this year, equivalent to 19% of GDP, and the highest recorded level of borrowing in peacetime history
- Unemployment to peak in the second quarter of next year at 7.5%, or around 2.6 million, before falling for the rest of the period
- Overseas aid spending will be cut to 0.5% of national income from 0.7%
1/ Today’s Spending Review delivers on the priorities of the British people.
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The chancellor’s statement to lawmakers on Wednesday begins the British state’s painful reckoning with the financial consequences of the pandemic, with some tough decisions on how to address a budget deficit ballooning toward a postwar high of 400 billion pounds ($533 billion).
Borrowing Surge
With the country on course for the worst slump in economic output in three centuries, and renewed lockdowns threatening further damage, the chancellor focused on support for jobs and the unemployed, plowing tens of billions of pounds into infrastructure spending, and ensuring the health care system can cope with a resurgent wave of infections.
Foreign Aid
That’s more than twice the previous record set during the financial crisis — a tally that would cause borrowing costs to spike if it weren’t for the Bank of England’s bond-buying program that has helped to curb the yield on 10-year bonds by about 50 basis points.
The cut in foreign aid spending is likely to dismay some Conservatives who warned it will hamper renewed efforts to display Britain’s global role just as Brexit takes effect. A lawmaker rebellion that could include former ministers including Andrew Mitchell, Tobias Ellwood and Harriett Baldwin might erupt if a change in the law is needed.
“Abandoning the 0.7% target for aid would be a moral, strategic and political mistake,” former prime minister David Cameron said, before the chancellor spoke. “I completely understand the need to keep spending under control but the aid budget is already falling because it is linked to the size of our economy. I hope the PM will stick to his clear manifesto promise, maintain UK leadership and save lives.”
Culled from Bloomberg
