How Have The Markets Responded To UK’s Economic Initiatives To Fight The Slowdown?

  • Mar 24, 2020 GMT
  • Team Kalkine
How Have The Markets Responded To UK’s Economic Initiatives To Fight The Slowdown?

In a bid to fight the economic and financial damage done by the Coronavirus, the UK government and the Bank of England have all come together and announced a host of measures including a couple of monetary policy changes, budgetary measures as well as quantitative easing measures that could support the gasping economy as well as the financial markets.

On Tuesday evening, Prime Minister Boris Johnson and Chancellor Rishi Sunak promised around 330 billion pounds or US $400 billion in government-backed loans and guarantees to support small and medium-sized businesses from the after-effects of the attempt to manage the spread of the coronavirus, while promising to go "further and faster" in the coming days to provide support.

The promises have come along with certain other measures including three-month mortgage holidays for homeowners; £10,000 or US $12,000 worth of grants for small businesses; and plans to specifically support the aviation industry.

The UK chancellor also pointed that the government had told insurance companies to "step up to the plate" and provide insurance pay outs to businesses that are forced to temporarily shut down, after pubs and restaurants complained that the government's "advice" on Monday that people should not go out for a drink or a meal-rather than a legal order-were forcing them out of business without being able to claim insurance. Tuesday's pledge followed a 30 billion pound ($36 billion) package the government committed to just a few days back in its budget announcement, including refund to small businesses for the cost of paying sick pay to people with coronavirus, and helping small companies via tax breaks and loans. The package included an extra 5 billion pounds ($6 billion) for the state-run National Health Service and 18 billion pounds ($22 billion) in fiscal stimulus, alongside interest rate cuts by the Bank of England.

How is the government helping people get wage Reliefs?

The United Kingdom administration and the Exchequer in a historic step have decided to help pay people’s wages as the massive spread of Coronavirus has now called for a stoppage of all economic activities in the country. In a press statement on last Tuesday, the chancellor of the Exchequer, who earlier announced a new budget completely focusing on tackling the slowdown caused by the pandemic, stated that the UK government would support the job workers in the country, by paying approximately 80 per cent of the total salaries of workers who have had to stop their jobs and work, primarily due to the pandemic. He mentioned that in this quest, an amount up to the value of around £2,500 a month, would be paid to these employees, also giving their employers an option to top that up with the rest of the 20 per cent, if they wished to.

In his latest bid to stop the transmission of the virus, Prime Minister of the UK, Mr Boris Johnson has taken some extreme measures, calling for a lockdown of the entire country for up to 3 weeks. This news was confirmed during the early hours of 24th March 2020, making it one of the longest lockdown periods in the country’s entire history. In another move to support the businesses in the country, It has also been announced that any VAT payments which had been left will be deferred to either the next quarter or could be postponed indefinitely to as and when the company is out of this crisis, which could potentially solve the cash flow and cost related problems, especially for the smaller companies in the country.

Bank of England’s actions to support the country

The BOE’s (Bank of England) Monetary Policy Committee met on Thursday, 19th March 2020, to announce that they have cut down the interest even further to a record 400 year low of 0.1 per cent. This was a historic decision, as even during the crisis of the two world wars, the bank rates were never declared to be this low. This unprecedented decision had been taken by the MPC to stimulate borrowing and spending in the economy so that the ailing industries in the United Kingdom, have a chance of survival, as and when the Covid-19 outbreak is contained and the situation gets back to normal.

Along with the slashing of the interest rates to a historic low, the Bank of England also announced quantitative easing measures worth £200 billion, taking the total measures to a value of approximately £645 billion. This came just days after Rishi Sunak’s announcement of an economic stimulus package worth £350 billion on behalf of the Exchequer. This package was meant to guarantee a massive increase in government spending as well as loan guarantees on the part of the government, that would allow companies to operate on a day to day basis and make payments to their employees as well as to their suppliers.

In another major proposal, a day before the BoE’s announcement for a rate cut and quantitative easing, it was reported that the prime minister Boris Johnson would announce a Cash for All scheme, toeing the lines of its closest ally the United States of America’s similar scheme to give a cheque of US $1000 to all American citizens. Economists and various other financial experts lauded these schemes but wanted some quantitative easing on both economic and health front from the Bank of England to support the industries and the financial system of the country, as a response to which, the decision of slashing the bank rate was taken.

How have the markets reacted to all the initiatives?

Source: Thomson Reuters, as on 24-03-2020, before the close of the London Stock Exchange Market

The financial markets, especially the stocks trading on the London Stock Exchange, have lost billions of pounds in value since the first news of the Coronavirus broke in the country. This has also been due to the investors losing confidence in companies, whose supply chains and manufacturing facilities have had to suffer a lot because of the pandemic. Some of the top retail sector brands have gone and delisted themselves as they were put into administration or completely closed down.

The FTSE 100 Index, which is the benchmark index of the London Stock Exchange, had been continuously falling for the last two weeks until the recent announcements made by the Exchequer, the bank of England as well as the UK government in terms of support packages for both businesses and individuals. At the time of writing, on 24th March 2020, at 12:00 P.M, the FTSE 100 index was reported to be trading at a value of 5222.03 points, an increase in the value of approximately 228.14 points or 4.57 per cent as compared to the value of the index at the time of closing on the previous day, which was reported to be around 4993.89 points. This was the second time in the last week since all the announcements were made that the index was trading in the green, which is an indication of the fact that despite the measure of the complete lockdown, the markets have taken well to the different announcements and initiatives taken by the government, and the investors are feeling somewhat positive about the future of the United Kingdom economy and its early recovery.

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