The British government offered to add a 4.6 billion pound support package for businesses on Tuesday to soften the recession. It was an expected recession caused by a surge in COVID-19 cases. This prompted a third national lockdown.
On Monday, Prime Minister Boris Johnson announced the lockdown. A highly contagious coronavirus variant risked overwhelming the health service within 21 days.
Most people must work from home and schools have shut for almost all pupils. Hospitality venues as well as non-essential shops must stay shut.
Britain’s economy is likely to tip back into recession. Shrinking in the final quarter of 2020 and Q1 of 2021, it suffered a record 25% fall. That is in output in the first two months of lockdown in 2020.
The new downturn is expected to be much smaller. Most businesses now have much better adapted to working remotely. Moreover, construction sites and factories are expected to stay open.
Economists at J.P. Morgan, however, still predicted a hefty 2.5% fall in output for the first three months of 2021.
Previously, Finance minister Rishi Sunak has announced emergency help worth 280 billion pounds. This includes a massive job protection scheme that will run until the end of April.
With Tuesday’s additional measures, retail, hospitality and leisure companies will be able to claim one-off grants. These are worth up to 9,000 pounds to get them through the coming months. It’s costing up to 4 billion pounds in total, along with 600 million pounds of grants for other businesses.
Sunak said this will help businesses to get through the coming months. It’ll crucially help sustain jobs, he said. So workers can be ready to return when they are able to reopen, he added.
Government forecasters predicted in November almost 400 billion pounds of borrowing this financial year. That’s equivalent to 19% of GDP, a peacetime record. It’s one that, at least for now, can be financed at record-low interest rates.
The Bank of England is buying government debt. In November, it ramped up its asset purchase programme to almost 900 billion pounds. That’s with the intention of using it throughout 2021.
The British Chambers of Commerce said, however, that Sunak’s approach to support businesses would see many go to the wall. This is because they would not qualify for sufficient assistance.
It is Britain who suffered the most severe contraction of any Group of Seven economy in the Q2 of 2020. The Organisation for Economic Cooperation and Development has estimated Britain’s recovery by the end of 2021. It will be the slowest of all its member countries except Argentina
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