Rishi Sunak, Britain's chancellor, has unveiled the largest sustained fiscal loosening since the early 1990s
ON MARCH 11TH policymakers took decisive action to inoculate the economy from the effects of covid-19. The Bank of England eased monetary policy. And Rishi Sunak, the chancellor, unveiled the largest sustained fiscal loosening since the early 1990s. He announced a £30bn , or 1.3% of GDP, giveaway for the coming year, made up of £12bn of immediate virus-related spending and £18bn of other measures.
The bank reduced base rates by 50 basis points back to the post-crisis low of 0.25%, a bigger cut than investors had expected. It also introduced a new facility to give banks access to cheap liquidity to sustain lending for small- and medium-sized businesses and it cut capital requirements. City economists were quick to note that, although interest rates cannot be reduced much further, the bank could still choose to restart its programme of quantitative easing should the outlook darken.
The support for businesses, especially smaller ones, was the most substantial element. The main target was to ease potential cashflow problems. Firms with fewer than 250 employees will have any statutory sick pay picked up by the government. The “time to pay” scheme, which lets firms restructure tax payments, will be extended. Business rates, a property tax, will be cut to zero for the coming year for most small firms in industries such as retail, hospitality and leisure.
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