LONDON – Britain took bold steps on Wednesday to cushion the economic shock of the coronavirus outbreak, as the government announced a 30 billion-pound ($39 billion) stimulus package and the Bank of England slashed its key interest rate to a record low of 0.25%.
U.K. Treasury chief Rishi Sunak said the new virus sweeping the globe — arguably the biggest economic shock since the global financial crisis 12 years ago — would have a “significant” economic impact, but it would be temporary.
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“We are doing everything we can to keep this country and our people healthy and financially secure,” Sunak said. “We will get through this together.”
In the government's annual budget, Sunak announced measures including extra funding for the health service, sped-up sick pay and benefits payments for people who are off work, and relief for struggling businesses.
He said the government would refund the cost of sick pay to firms with less than 250 employees and would provide cheap loans for small businesses struggling because of the COVID-19 illness.
Sunak said the measures, which include 7 billion pounds for people and businesses, 5 billion pounds for the health service and 18 billion pounds in other spending this year, would “protect the vast majority of businesses through the worst of the crisis."
In a coordinated move, the Bank of England earlier reduced its key rate from 0.75% to 0.25% to help support businesses and consumer confidence.
The cut took the rate to a low last reached after Britain's June 2016 vote to leave the European Union and follows similar reductions from the U.S. Federal Reserve and the Bank of Canada. The European Central Bank is also expected to announce a stimulus package on Thursday.
Though other countries have had far bigger outbreaks, the coronavirus has affected the U.K. economy, slamming the stock market, hitting tourism and clogging up supply chains that many businesses rely on.
Sunak said that when the outbreak peaks in Britain in coming weeks, up to 20% of workers could be off sick or in self-quarantine. As of Wednesday, the U.K. had 456 confirmed cases and six deaths.
In addition to the rate cut, the Bank of England also announced measures it hopes will keep money flowing through the economy. A new funding scheme is designed to help small- and medium-sized firms while the cut in a capital buffer to zero from 1% that banks have to keep in reserve is aimed at bolstering lending.
Outgoing Bank of England Governor Mark Carney said the measures could make hundreds of billions of pounds (dollars) available to firms and financial institutions and his successor from Monday, Andrew Bailey, said more could be done in the weeks ahead.
“These measures will help keep firms in business and people in jobs,” Carney told a press briefing. “This is a big, big, package."
Carney downplayed concerns the virus emergency could be as damaging as the global financial crisis, largely because banks are in better health now.
“There is no reason of this shock to turn into the experience of 2008 and a lost decade in economies if we handle it well," he said.
Emergency coronavirus measures dominated the government’s annual budget, the first since Prime Minister Boris Johnson's Conservatives won a big majority in December. It's also the first since the U.K. left the European Union on Jan. 31. Britain's economic outlook is already weighed down by uncertainty about the U.K.'s future relationship with the EU.
Despite the stormy economic climate, Sunak announced many costly measures on top of the virus-related stimulus, including 5.3 billion pounds for flood defenses and billions in infrastructure spending designed to boost the economy in poorer parts of the country — a key promise of Prime Minister Boris Johnson.
“Broadband, railway, roads — if the country needs it, we will build it,” Sunak said.
There were few obvious revenue-generating measures in the budget to pay for the plans, but economists said the loosening was justified.
“These measures seem proportionate to the potential scale of the health crisis and the risks to people’s livelihoods," said Garry Young, an economist at the National Institute of Economic and Social Research. “It is entirely appropriate that government borrowing should rise in these circumstances.”
Jeremy Corbyn, the leader of Britain's main opposition Labour Party, welcomed the stimulus but said the measures announced “go nowhere near reversing the damage” done by Conservative governments over the past decade.
“We have to be straight with people that it’s going to be so much tougher because of the last 10 years of deeply damaging and counter-productive cuts to our essential public services,” he said.
As Sunak presented his budget to hundreds of lawmakers in the cramped House of Commons chamber, the new coronavirus moved closer to the heart of the British government.
Nadine Dorries, a minister in the Department of Health, said she was self-isolating as she recovers from the virus. Health officials were tracing those who had been in contact with Dorries over the past week, when she worked in Parliament, held meetings with constituents and attended an International Women's Day reception with the prime minister.
Parliamentary officials said that there were no plans to close Parliament, where thousands of people work in an aging, crowded complex of buildings.
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