Rishi Sunak, chancellor of Britain, announced a one-year spending plan and insisted foreign aid would be cut.
Britain will borrow nearly 400 billion pounds this year to pay for a massive coronavirus attack on its economy, Finance Minister Rishi Sunak said on Wednesday, as the budget deficit spiked to its highest level since World War II.
The world’s sixth largest economy will now shrink 11.3 percent in 2020, the biggest contraction since the early 1700s, before growing by 5.5 percent in 2021, said Sunak as he announced his one-year spending plans.
“Our health emergency is not over. And our economic emergency has just begun, “he told Parliament. “So, our top priority is to protect people’s lives and livelihoods.”
Announcing the latest forecast from the Office for Budget Responsibility (OBR), Sunak said public borrowing would be 394 billion pounds ($ 526 billion) in the 2020-21 financial year starting in April.
That equates to 19 percent of gross domestic product (GDP), the highest ever during peacetime and nearly double its level after the global financial crisis that took nearly 10 years of unpopular spending cuts to succeed.
In the 2019-20 financial year, which ended when the country began to be hit by the COVID-19 pandemic, loans were just over 56 billion pounds ($ 75 billion), or 2.5 percent of GDP.
The UK economy has been hit harder by the coronavirus pandemic than many other wealthy nations. Nearly 56,000 Britons have died from COVID-19, the highest death toll in Europe.
The OBR says the economy may only regain pre-crisis size by the end of 2022.
Sunak has accelerated emergency spending and tax cuts to offset the crisis, including the recent extension of the government’s main job protection scheme.
Sunak said the cost of the fight against the coronavirus is now 280 billion pounds ($ 374 billion) this year, up from an earlier estimate of around 200 billion pounds ($ 267 billion).
He previously said this was not the time to begin to sharply curb lending, with the economy likely to shrink again in the fourth quarter of 2020 following business restrictions by the latest coronavirus.
During this year and next year, daily spending will increase in real terms, by 3.8 percent, the fastest growth rate in 15 years, said Sunak, adding that 100 billion pounds ($ 133 billion) will be spent next year in the long term- investment futures, 27 billion pounds ($ 36 billion) more than last year.
But he signaled a first step towards offsetting at least part of his spending by announcing a salary freeze for most public sector workers, except doctors, nurses and other health care staff.
He also announced a reduction in the UK’s foreign aid budget.
“I want to assure the DPR that we will continue to protect the poorest in the world, spending the equivalent of 0.5 percent of our national income on foreign aid by 2021,” said Sunak.
“And our intention is to return to 0.7 percent if the fiscal situation allows.”
The UK also faces the risk of a trade shock in six weeks, when a post-Brexit transition deal expires. No new trade agreement has yet been reached with the European Union.
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