Tough day at the Commons
Everywhere from government to markets, households to workplaces, people are looking two ways with respect to the pandemic. Firstly, at what is ahead and the promise of a vaccine and secondly, what lies between then and now. However, not one of these collectives have better demonstrated this ‘mind the gap’ analysis of the pandemic than Chancellor Sunak in the House of Commons yesterday. His chancellorship following the swift replacement of Sajid Javid has been one characterised by the big cheque book. Praised for taking the necessary steps to support the economy with hugely expensive policies including the furlough scheme, he is now exploring the less familiar path of budgetary parsimony. Yesterday’s announcement in the commons saw a whiplash style spending review with large spending commitments peppered with warnings of a huge bill to come next year.
This week has seen considerable changes take place to the UK political economic outlook. Between the announcements on Monday regarding new social restrictions and the Chancellor’s spending review yesterday, a somewhat bleak picture is emerging for the UK economy over the 4th Quarter of this year and the Spring. Despite some large spending commitments yesterday from the Chancellor the projection is for the UK economy to enter a double dip recession in Q4 this year and unemployment to peak next year at 7.5%. The lockdown restrictions remain severe regardless of which tier a region is placed in. With the hospitality sector still under considerable threat in tiers two and three and everyone who can work from home ordered to do so still across tiers 1, 2 and 3, further business closures are to be expected.
Part of the Chancellor’s spending review included a £2.9bn programme to help stave off the rise in unemployment. Dubbed the Restart scheme, the initiative so far has been criticised for not taking adequate measures to ensure job vacancies exist for the scheme to reallocate the long-term unemployed. Winners and losers were produced by yesterday’s spending announcements with schools, hospitals, police and prisons picking up extra funding at the expense of the overseas aid budget.
Sterling found support during the chancellor’s announcements to the House of Commons yesterday despite the £394bn fiscal deficit expected this year. Commentators seemed optimistic that pledges made in the manifesto had been honoured in the spending review reinforcing the return to normality next year and upgrading the supply side of the UK economy. The ruling out of austerity next year to fund the deficit also encouraged GBP higher. Mr Sunak also did not comment on how the deficit would be funded – higher tax or lower spending – despite warnings of a tough road ahead.
Discussion and Analysis by Charles Porter
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