UK national borrowings grow as coronavirus support continues

Summary

• UK government continued with high expenditure to support the economy severely impacted by the Covid-19 led crisis
• Tax revenues dropped with falling personal income and corporate profits

Public sector borrowings of the UK government were worth £36 billion during September 2020, according to the latest data from the Office for National Statistics. The corresponding value in September 2019 was £28 billion.

It is the third highest monthly borrowing figure in the British history, since the monthly records began in the year 1993.

While expenses continue to swell on one hand, revenue is continuing to drop. This is the main reason for non-stop growth in public debt.

The tax collections were £38 billion in September, lower than the 2019 value for the same month by 6 billion pounds. Shortfalls were mainly seen in the receipts of business, corporate, and value added taxes.

The government outlay towards the furlough scheme was close to £5 billion for the month of September 2020.  Total public debt has crossed a value of £2 trillion in Britain, highest value witnessed since the 1960s.  

Government debt totalled £209 billion for the first six months of the FY 2021. It was much more than the amount borrowed by the government during the corresponding period in FY 2020. In fact, it was nearly four times the amount borrowed during the entire FY 2020.

According to the Office for Budget Responsibility estimates, total borrowing for FY 2021 could touch an all-time high figure of £372 billion, putting high pressure on the UK treasury.

Government support

The UK government has come out with various plans and schemes to support the businesses and general public hit by the devastating impact of the coronavirus pandemic.

The prominent ones among these are schemes related to corporate finance facility, job retention or furlough, self-employment support, eat out to help out, business loan, stamp duty holiday, future fund, kickstart, job support, and retention bonus.

Moody’s downgrades UK rating

The global credit rating agency Moody's lowered the United Kingdom’s sovereign debt status by one level – from Aa2 to Aa3. The agency remarked that the nation’s growth has been slower than expected and not much improvement is foreseen in the near future as well.

Failure to strike a favourable deal with the European Union would also make the UK ‘s economic and investment prospects bleak, noted Moody’s.

It also said that the country’s fiscal outlook is weak since its public borrowings are on the rise as government tried to ceaselessly support the nation from the damaging effects of the deadly virus disease.

UK has seen the highest number of reported deaths due to Covid-19 virus across the European continent.

The total number of deaths due to coronavirus were 762,542 in Britain on 20 October 2020. The daily reported cases with coronavirus infections were rising rapidly over the past few weeks. On 1 September, the number was 1,295 while on 20 October it had multiplied to 21,331.

UK economy deteriorating

The state of the British economy is deteriorating with the advent of a second corona wave across the nation. Economic experts predicted that the economy will contract during the Q4 2020 as well, after having shrunk for the first two quarters of the year.

Gertjan Vlieghe, member, Monetary Policy Committee, Bank of England opined that more intervention might be required to get the economy back on track. He backed the need for negative interest rates and more quantitative easing (QE) by the central bank of the UK.

He felt that the below-zero interest rates might just push up private investment across sectors and boost the dwindling economic growth. However, there is reluctance to go ahead probably because such rates have never been tried out in the UK before, stressed Vlieghe.

Market experts also point towards more stimulus, close to £100 billion, coming forth in November from the bank’s side. However, QE might be less effective now than it was in March 2020, according to Vlieghe.

He also said that the unemployment is set to rise higher than earlier predicted with recent spike in coronavirus infections.

Unemployment

More and more companies are being forced to lay-off staff with a rapid surge in coronavirus cases across the UK. Businesses are struggling to survive with very low demand for their products and services as the nation continues to struggle with the pandemic.

According to latest government statistics, the UK unemployment rate has moved up from 4.1 percent in July to 4.5 per cent during the three months to August 2020. It is expected to touch at least 8 per cent by the end of 2020, according to leading economists.

Rough estimates indicate that more than 1.5 million people were jobless in Britain and the crisis would peak with the ending of the furlough scheme, which closes soon on 31 October 2020. The scheme had been paying for 80 per cent of the staff salary of employees working for companies affected by the coronavirus pandemic.

Job losses are expected to keep rising as this difficult year draws to a close, said Tej Parikh, chief economist, Institute of Directors.

Youngsters in the age group of 16 to 24 years have been hit the hardest due to job losses. The global health crisis has impacted their sources of livelihood and it is a grave area of concern. Nonetheless, the unemployment rise is seen across the board – among young and old, for self-employed and part-time workers, and temporary staff. This is one of the signs of an economic recession, explained the market experts.

Government support might need to be beefed up in case it wishes to avoid any more rise in the unemployment across the nation, expressed the economic experts.