Fiscal Balance in United Kingdom

United Kingdom Fiscal Balance | Economic News & Forecasts

United Kingdom - Fiscal Balance

Additional stimulus package unlikely to alter downbeat economic panorama

On 8 July the government unveiled additional fiscal measures worth GBP 30 billion. Chief among these were GBP 1,000 bonuses to firms retaining workers once the wage subsidy scheme (CJRS) ends in October, a cut in VAT from 20% to 5% for the hospitality sector, and a fund to create more jobs for young people. The new package—which follows previously announced stimulus of roughly GBP 140 billion—could provide the economy with a slight boost. However, the impact will not be transformative, and the outlook for the economy will continue to be guided chiefly by the evolution of the Covid-19 outbreak.

While the financial incentive to retain workers will boost firms’ resources somewhat, it will likely be insufficient to prevent large layoffs if the underlying demand picture does not improve. As Azad Zangana, senior economist at Schroders, comments:

“A £1,000 bonus per member of staff is hardly going to make a difference for firms that are no longer economically viable, either due to social distancing restrictions or changing behaviours. Some firms may now temporarily bring back staff only to collect the bonus and let them go in January, but the majority of the bonus payments will simply go to firms that had planned to bring back their staff in any case.”

Regarding the VAT cut, the impact could be curtailed by weak consumer sentiment. According to analysts at ING:

“Involuntary savings will have dramatically increased for many who have been more fortunate to continue earning through the crisis. If demand remains low now that the economy has largely reopened, then it is therefore more likely motivated by safety concerns rather than financial constraints.”

On the outlook for fiscal policy looking ahead, Goldman Sachs states:

In our view, it is in the Autumn Budget (likely delivered in late October) that the Chancellor will set out the third phase of the government's response to Covid-19. […] we expect the government at that stage to recommit to a medium-term programme of debt-financed fiscal expansion, albeit within the confines of a commitment to keep the public finances on a “sustainable path” over the remainder of the current Parliament. Beyond the immediate post-virus recovery, we expect the Chancellor to double down on the government's “levelling up” agenda rather than pivoting to the post-crisis fiscal consolidation pursued by his predecessors.”

Our panelists see the fiscal deficit peaking this year, before shrinking sizably over the forecast horizon out to 2024.
FocusEconomics Consensus Forecast panelists see a fiscal deficit of 12.1% of GDP in 2020 and 6.5% of GDP in 2021.

United Kingdom - Fiscal Balance Data

2015   2016   2017   2018   2019  
Fiscal Balance (% of GDP)-4.6  -3.3  -2.5  -2.2  -2.1  

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United Kingdom Facts

Value Change Date
Bond Yield0.83-3.04 %Jan 01
Exchange Rate1.33-0.35 %Jan 01

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