The largest public borrowing since World War Two is will be announce by the United Kingdom’s finance minister Rishi Sunak when he would be detailing the government’s spending plans next week. The UK economy has seen its biggest hit in more than 300 years.
The longer-term plans for the public finances have been postponed by Sunak because of the currently on going second wave of Covid-19 pandemic and the very slow economic recovery.
After the British government extend the job protection programs and with other pandemic related expenditure likely to spill into the 2021/22 fiscal year, it is estimated that this year, the total spending of the government on the pandemic is set to exceed 200 billion pounds ($265 billion).
A multi-year increase in funding will only be made for the country’s armed forces as part of British Prime Minister Boris Johnson intent to boost Britain’s profile outside the European Union.
The scale of new borrowing forecasts, which in turn will give rise to the need for future tax increases, is likely to overshadow Sunak’s other spending announcements on Wednesday.
“Events next week might… prove an important prelude for a pivot to a tighter fiscal approach in the spring budget,” economists at Citi said in a note to clients.
According to media reports, Sunak plans to freeze pay for all workers in the public sector except the health staff, in an effort by Sunak to look for ways to begin reducing the huge surge in borrowing.
Prime Minister Boris Johnson has refused to commit to maintaining spending on overseas aid.
Between April and June, there was 20 per cent shrinking of UK’s economy which was higher than any other major economy and the recovery has been very slow.
According to the forecast of the Bank of England, the UK economy is set to contract by 11 per cent in 2020, a number that was last witnessed in 1709.much higher than the 10 per cent peak that the economy had reached at the height of the global financial crisis of 2008.
The government has borrowed 215 billion pounds in just the first seven months of this financial year, according to data published on Friday, which is almost five times greater than at the same period last year.
But with emergency pandemic spending being scaled back, the borrowing amount is likely to fall. However according to HSBC that will still be unsustainable at 8.5 per cent % of GDP in 2021/22.
On the other hand, Citi forecast, the UK government will require to borrow an additional 800 billion pounds over the next five years, compared with forecasts in March.
In order to get the public finances “on a sustainable path” over time, hard decision will have to be taken by the government in the times ahead, Sunak has warned.
(Adapted from CNBC.com)