UK’s debt soars to highest since 1963

LONDON: An employee wearing personal protective equipment (PPE) including a face mask and a visor staffs the entrance to up-scale department store Fortnum and Mason on Piccadilly in central London on Friday. – AFP

LONDON: A measure of British public debt leapt to close to 100 percent of the country’s economic output in April, its highest in nearly 60 years, and retail sales slumped by a record 18 percent as the coronavirus crisis hammered the economy.

Government borrowing of 62.1 billion pounds ($75.80 billion) in April alone was just a fraction lower than its total for the whole 2019/20 financial year. It was also far higher than a median forecast of 40 billion pounds in a Reuters poll of economists.

On top of that, March’s borrowing was revised up sharply to almost 15 billion pounds as the government’s emergency job-saving scheme began and tax revenues were revised down. That took the stock of public debt to nearly 98 percent of gross domestic product, also reflecting a lower estimate of the size of the economy based on a recent coronavirus scenario by Britain’s budget forecasters. 

Wage cost

The United Kingdom has drawn up plans to require employers to cover 20 percent to 30 percent of furloughed employees’ wages from August to reduce the vast burden of the coronavirus crisis on government finances, The Times newspaper reported. The United Kingdom on May 12 extended its job retention scheme – the centerpiece of its attempts to cushion the coronavirus hit to the economy – by four months but told employers they would have to help to meet its huge cost from August.

“The Treasury has drawn up plans that would require employers to cover between 20 and 30 per cent of people’s wages,” The Times said. “They would also be required to cover the cost of employer’s national insurance contributions, on average 5 per cent of wages.”

Finance minister Rishi Sunak is expected to announce the changes next week, The Times said. Sunak said on Friday that Britain was facing a “very serious economic crisis” and jobs would be lost in the “days, weeks and months to come”. 

“The double whammy of the precipitous fall in economic activity and the government’s measures to combat the crisis has already pushed borrowing to alarmingly high levels,” Ruth Gregory, an economist with Capital Economics, said.

“While the small easing of the lockdown on 13th May probably meant the government did not have to borrow quite as much this month as in April, it’s clear the government will still have to borrow a few hundred billion pounds this year.”

Bank of England Deputy Governor Dave Ramsden told Reuters that an economic recovery later this year could be slower than in a central bank scenario published earlier this month, and he pointed to several risks of long-term damage.

Borrowing costs down

“While there is significant pressure on the public finances, there are no signs that the government is struggling to find the cash,” Charlie McCurdy, a researcher at the Resolution Foundation think-tank, said.

British government borrowing costs over two and five years fell to new record lows as debt markets opened on Friday. “It would therefore be wrong to reduce coronavirus support measures prematurely,” McCurdy said.

Central government spending leapt by 54 percent to over 109 billion pounds while receipts fell about 26 percent to 45.6 billion pounds. The ONS also said British retail sales fell by the most on record in April as much of the sector was shuttered by the government’s coronavirus lockdown.

Sales volumes slumped 18.1 percent in April from March, a slightly bigger fall than forecast in the Reuters poll. James Smith, an economist with ING, said there might not be a quick bounce-back for retailers when the lockdown is lifted. “Recent surveying from YouGov showed that just under half of people would be uncomfortable with returning to a clothing shop, although the jury is out on whether the public will become more relaxed by the time retailers do reopen next month,” he said.

The volume of clothing sales in April plummeted by 50.2 percent when compared with March 2020, which had already fallen by 34.9 percent on the previous month.

But the share of spending that was done online jumped to 31 percent of the total, a big increase from 22 percent in March. Fuel sales tumbled by a record 52 percent, reflecting the impact of the government’s lockdown order. But alcohol stores showed an increase in sales, up 2.3 percent. — Reuters

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