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Rishi Sunak rules out further bailouts to businesses during second coronavirus wave
October 30, 2020
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In a warning that the Treasury is reaching its borrowing limit, the Chancellor rejected calls from financial experts for the Government to start preparing more emergency cash injections into the economy. He spoke out last night after the International Monetary Fund downgraded its forecast for the UK’s recovery, despite praising his action as among the best in the world.
Mr Sunak insisted his current Plan for Jobs package to support businesses hit by local lockdowns will be enough to protect employment through the winter months.
Further colossal spending pledges threatened to wreck the public finances, he said.
“Let’s be clear on what the fund is saying today – it’s right to support the economy in the short term but over time, and in line with other major economies, we must get our public finances back on a sustainable path,” the Chancellor said.
“With our Plan for Jobs, we have the right policies in place to protect jobs and businesses through the winter period.”
IMF chiefs used an annual review of the UK economy to forecast a total fall in national output (GDP) of 10.4 percent this year – worse than the 9.8 percent shrinkage forecast for the country by the organisation in a World Economic Outlook a fortnight ago.
Yesterday’s IMF report praised Mr Sunak’s “aggressive” measures, including his furlough scheme to support businesses, while adding there was a case for more massive spending if the second wave continues to dampen output.
The report blamed “headwinds from a second Covid-19 wave” for the adjustment. It also downgraded the forecast for GDP growth next year from 5.9 percent to 5.7 percent.
Britain had suffered a “significant human toll” from the pandemic, the IMF report said.
“The authorities’ aggressive policy response – one of the best examples of coordinated action globally – has helped mitigate the damage, holding down unemployment and insolvencies. Still, GDP has dropped dramatically, and private and public debt levels are set to rise significantly.
“A sharp initial economic rebound now faces headwinds from a second Covid-19 wave,” the report said.
IMF chiefs claimed low interest rates meant the Government could afford to borrow more for more high spending. “Continued policy support is essential to see the economy through the pandemic and the transition to the post-Brexit trade regime.”
It went on: “There is room to loosen monetary policy in the near term.
“Invigorating growth as the pandemic subsides will require an additional fiscal policy push, and this should take advantage of opportunities to build forward better. Current plans would lift public investment to address productivity, climate goals, and regional inequality. There is a case to spend more, if project effectiveness can be preserved at higher scale.”
In response to the report, Mr Sunak said: “The IMF has recognised that our strategy is working.” He added: “At the same time, we have a responsibility to ensure the next generation inherits a strong economy backed by strong public finances.”
His remarks follow tensions within the Government, with some Cabinet ministers pressing for stricter lockdown measures while the Treasury is concerned about cost and threat to jobs.
Kristalina Georgieva, IMF managing director, said: “We welcome that the authorities have committed to deliver [support] as long as necessary to boost expectations and confidence.”
She added: “We are keen to advise everyone to be agile and flexible as the pandemic continues.”
Ms Georgieva said the IMF’s expectations include a presumption that the UK and EU will reach a Brexit trade deal, with more turmoil likely if the talks fail.
Experts at the IMF said the initial sharp economic rebound was also being hurt by rising unemployment and stress on corporate balance sheets.