As Coronavirus spreads across the globe, the economic impact cannot be overstated. The UK debt management office, the arm of the UK Treasury that borrows on behalf of the UK government from the international money market has announced it’s plan to raise money to cushion the effect of the Covid-19 pandemic on UK’s economy.
In a report released on Thursday, it announced how much the government is planning to borrow. April borrowing would amount to £45bn with an additional £180bn for three months starting from the beginning of May to the end of July. This will bring the government’s total borrowing in 4 months to £225 billion.
“The UK Debt Management Office (DMO) is today publishing a revision to its 2020-21 financing remit covering the period May to July 2020. In line with the revision to the DMO’s financing remit announced by HM Treasury today, the DMO is planning to raise £180 billion during the May to July 2020 (inclusive) period, exclusively through issuance of conventional and index-linked gilts”
Government’s expense has increased due to the response and relief funds for combating the effect of the Coronavirus pandemic. The Boris John led government had announced tax cut and spending increases worth of £100 billion in an effort to reduce the economic impact of the crisis as well as it’s effect on the people.
On the other hand, the government has seen it’s revenue from tax, VAT and national insurance slump due to the economic shutdown which has seen many businesses closed in the bid to control the spread of Covid-19.
The report affirmed that “this remit revision takes into account implications for the government’s financing requirement of all measures announced by government to date to support the economy through the period of disruption caused by COVID-19”. These factors reduced the DMO’s end-March 2020 net cash position to -£17.9 billion, which is £18.4 billion below the planned level”.
If the coronavirus lockdown and movement restrictions continued across the country into the second half of the year beyond it’s projection, then UK government would borrow £500 billion, according to the projections from Resolution Foundation,
However, the Office for Budget Responsibility (OBR) scenario projects that UK government might borrow seven times it’s borrowing expectation prior to Covid-19 outbreak, which would amount to £382 billion for the year. It is also stressed that the amount to be borrowed is dependent on the extent the lockdown would last.
Table 1 below sets out a proposed auction calendar for May to July 2020. This auction calendar supersedes the calendar for April to June 2020 that was published by the DMO on 20 March 2020. The DMO intends to continue the same approach to the scheduling of auctions that it introduced in April 2020. Hence, the DMO plans, in general, to conduct four auctions per week; two each on two consecutive days.
If the coronavirus lockdown and movement restrictions continued into the second half of the year beyond it’s projection, then UK government would borrow 500 billion pounds.
UK 2019-2020 financial year recorded a deficit of – £48.7bn representing 2.2% of the country’s GDP and was £9.3 billion higher compared to that of 2018-2019 financial year. UK deficit has a potential of rising to £260 billion pounds by the end of 2020 according to the Director of the Institute for Fiscal Studies Paul John.
On the other news The UK Prime Minister Boris Johnson is set to return to Number 10 on Monday according to the daily Telegraph, to take back control of the Covid-19 crisis amid cabinet concerns that the lock down has gone too far.
Written by:
Ifunanya Ikueze
