The Chancellor of the Exchequer, Rishi Sunak, is planning to introduce a stimulus package in the autumn to combat the damaging effects that the coronavirus lockdown has had on the economy. There had been speculation that there would be an emergency budget in July 2020, but the Chancellor has decided to put any package back until the autumn to determine how the economy settles down with the easing of the lockdown. Nevertheless, there may still be a more limited announcement of measures ahead of the autumn, should it be felt necessary.
The Need For A Stimulus Package
Recent economic indicators highlight that the worst of slump may be over. The IHS Markit / CIPS Flash UK Composite PMI (i.e. purchasing managers’ index), for example, showed a return to growth in UK manufacturing and a slowing down in the contraction of the services sector. The manufacturing PMI rose to 50.1 from 40.7 in May, and is now above the 50 threshold which indicates that the economy is in stagnation. Meanwhile, the services PMI rose to 47 from 29 in May. The news release stated: "June data indicated a vastly improved overall picture across the UK private sector, with the downturn in total business activity continuing to steady after the record rate of decline seen at the height of the lockdown during April. Another drop in service sector activity contrasted with a return to production growth among manufacturing companies in June." This encouraging data supports the forecasts of a reasonably rapid recovery from the likes of Oxford Economics, compared with more pessimistic predictions.
Nevertheless, the following indicates that the UK economy has been badly damaged by the coronavirus lockdown, and is in need of a Government stimulus package to ensure that the UK economy remains on track to bounce back as quickly as possible:-
- The number of people who are unemployed and claiming benefits has increased to 2.8 million in May 2020, an increase of 1.6 million since March 2020, a rise of 125.9%. Meanwhile, the number of job vacancies fell to 476,000 in May 2020, a fall of 342,000 since March 2020, which represents the largest fall ever recorded. The May 2020 total also represents a record low in the number of UK vacancies. The director of the Institute for Employment Studies, Tony Wilson, states: "If the public health crisis is just starting to ease, today’s figures show that the unemployment crisis is only just beginning. There can be no doubt now that we are on course for claimant unemployment of 3 million by next month, and it may well reach the highest ever recorded."
- GDP fell by 20.4% in April 2020, with services output declining by 19.0%, production by 20.3%, and construction contracting by 40.1%
- Consumer confidence fell to -36 in late May 2020, its lowest level since January 2009, according to Growth for Knowledge, but has now recovered to -30 for the period 5.6.20 to 19.6.20. This recovery is in line with the recovery detected in the wider economy by IHS Markit. Apple mobility data, moreover, has seen a large rise in road trips, indicating an increase in shopping. This is supported by data from Springboard which shows that there has been a 45% increase in footfall.
Government Stimulas Package
There was speculation that the Chancellor of the Exchequer, Rishi Sunak, was planning to introduce a stimulus package in July 2020, but this has now been pushed back until the autumn. Accordingly to the Financial Times, "Mr Sunak, who has already spent £133bn mitigating the economic damage wrought by coronavirus, wants to wait until the problems facing the economy are clear before making irreversible spending commitments. The Treasury confirmed on Friday that he was still considering an economic update in July that could include a limited package of measures but it would fall far short of an emergency Budget. The department said: "We will be taking stock of the economic situation, and looking at if and where further support makes sense ahead of the more significant moments in the autumn."" The Financial Times added: "Infrastructure will feature heavily, although Mr Sunak wants to focus particularly on projects that will stimulate the economy “in the next 12-18 months”, according to one government official."
Reaction
A stimulus package is widely supported. The director of the British Chambers of Commerce, Adam Marshall, for example, states: "While the relaxation of the 2 metre rule will help more firms increase capacity, we are still a long way from business as usual. Broader efforts to boost business and consumer confidence will still be needed to help firms trade their way out of this crisis. Businesses also need a clear roadmap to recovery, including fresh support for the worst-affected sectors and geographic areas, and broader fiscal measures to get the economy moving again."
