FTSE falls despite boosts from budget and bank

UK finance minister Rishi Sunak on Wednesday unveiled his budget — a £30 billion stimulus package — and promised to do whatever it takes to support the UK economy amid the harsh financial impact of the coronavirus.

The chancellor’s bold move came a few hours after the Bank of England — the UK’s central bank — announced an emergency interest rate cut from 0.75% to 0.25% and a series of other measures.

The FTSE 100 Index was flat before the budget speech — but closed 1.4% lower, falling alongside European and US indexes.

UK shares had risen more than 2% in early trading after the emergency rate cut.

Sunak announced the budget plan as part of a larger debt-fueled investment surge by the UK government that budget forecasters said represented the biggest stimulus package since 1992.

Sunak said the budget plan would include £640 million in additional funding from the UK Government to the Scottish Government — and provide a significant boost to Scottish broadband infrastructure.

PwC chief economist John Hawksworth said Sunak was increasing UK spending in the face of the uncertainties about coronavirus, the global economy and the UK’s ability to secure a European Union trade deal. 

“Time will tell if this gamble pays off,” said Hawksworth.

The chancellor said he would help ease a cash-flow crunch for UK companies with measures including a year-long suspension of a property tax for smaller firms and would also provide help in providing sick pay. 

In the plan, businesses and self-employed people can defer tax payments and sick pay qualification rules have been relaxed.

Public investment will total more than £600 billion over the next five years.

The UK’s Office for Budget Responsibility (OBR) said the UK deficit would hit nearly 3% of GDP in the 2021-22 fiscal year, up from a previous forecast of 1.6%.

The OBR said Sunak’s plans would add £125 billion to the UK’s public debt by the mid-2020s, about 4.6% of GDP. 

That would mean the UK’s debt-to-GDP ratio holds steady at around 75% rather than falls as previously planned.

Sunak said: “Taken together, the extraordinary measures I have set out today represent £7 billion to support the self-employed, businesses and vulnerable people.

“To support the NHS and other public services, I am also setting aside a £5 billion emergency response fund – and will go further if necessary.”

He said other plans represented another £18 billion of “additional fiscal loosening” and “that means I am announcing today, in total, a £30 billion fiscal stimulus to support British people, British jobs and British businesses through this moment”.

Sunak said Scotland will benefit from a £640 million boost to support its economic growth and level up opportunities.

Sunak outlined what he called additional funding for the Scottish Government, allowing it to deliver on the priorities of the Scottish people.

“This is a Budget that will deliver for the Scottish people, with £640 million in extra funding for the Scottish Government, a significant boost to broadband infrastructure and a package of support for the Scotch whisky industry, among other economic measures,” said Sunak.

He said announcements for Scotland also include:

  • A significant package of support for the Scotch whisky industry.
  • Plans to rollout gigabit capable broadband to the hardest to reach areas of Scotland and increasing 4G coverage in Scotland from 42% to 74%.
  • £5 million for trials of 5G in Scotland.

The Budget also confirmed £25 million for an Argyll & Bute Growth Deal. 

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.