What’s Going On Here?The UK government made it rain on Wednesday by announcing a raft of new economic support potentially worth up to $38 billion (tweet this). What Does This Mean?With UK unemployment on the rise and government’s job retention scheme set to wrap up by October, there’s a risk economic demand won’t recover enough to protect those who’ve been furloughed from losing their jobs. That might be why the government has now announced plans to pay employers to create new jobs, as well as bring their existing employees back into the fold.
The Boy Wonder of the Exchequer had other tricks up his sleeve too. For one, he introduced temporary tax cuts on both the purchase of properties and goods in the hospitality sector. For another, he announced $4 billion worth of infrastructure and green investments – from improvements to the energy efficiency of homes to broader plans that’ll slash the country’s carbon footprint. Why Should I Care?For markets: Blood, debt, and tears.
The government might be hoping that by keeping people in work, it’ll encourage them to keep spending their hard-earned wages. That should grow the economy and help convince investors the UK will be able to repay its bonds. Those investors are increasingly hesitant, after all: the amount the country’s spent battling coronavirus has grown its debt to about the same size as its entire economy. But tax cuts might not calm their nerves, either: the poorest in the country tend to buy low-tax items anyway, and the richest – who have been affected least – aren’t as easily incentivized to spend more.
The bigger picture: The “special relationship” in action.
America’s playbook could look similar to the UK’s if the US government goes ahead with more mooted economic support before August – perhaps in response to the country’s rising number of coronavirus cases. It’s spent some $6 trillion in response to the pandemic so far, and this package could see another $1 trillion added to that. | 