UK to borrow £225bn to cover Covid-19 spending
The UK has announced plans for a massive surge in borrowing over the next few months, to cover the cost of the Covid-19 pandemic.
Britain’t Debt Management Office says it plans to issue £180bn of bonds between May and July.
That’s up from £32.6bn in the same period a year ago, and more than the DMO had expected to raise over the entire year.
Most of this borrowing will be used to cover the cost of the government’s packages to tackle the outbreak, such as the wage retention scheme for workers who are furloughed.
The DMO says:
This remit revision takes into account implications for the government’s financing requirement of all measures announced by government to date to support the economy through the period of disruption caused by COVID-19.
But, it’s also on top of the £45bn which the DMO also raised in April alone to cover the first wave of Covid-19 spending.
In total, the UK will be borrowing £225bn over the first four months of this financial year – an astonishingly high total (the entire national debt is around £2 trillion).
The Treasury says:
“This higher volume of issuance is not expected to be required across the remainder of the financial year.”
Introduction: PMIs to show Covid-19 recession
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
A fresh blizzard of data today will show us just how badly the world economy is suffering from the Covid-19 downturn.
Surveys of purchasing managers across the UK, Europe and the US are likely to give the same story — plunging activity, falling orders and rising unemployment, as the world falls into a reession.
This is likely to drive some of these PMI surveys of activity down to their lowest levels since the surveys began.
Fiona Cincotta of City Index explains that a particularly grim PMI report could spook investors:
Sentiment clearly remain fragile and that could be magnified with the release of the PMI readings for the UK and Eurozone.
The service sector accounts for 80% of UK economic activity. In March the UK service sector contracted at the fastest pace on record, dropping to 34.5 on the index. And that was only the beginning of lock down! This months’ reading is expected to dive deeper into contraction territory to 29.
The manufacturing sector, which has not been as servery impacted by the stay at home measures is forecast to contract further to 42 in April down from 47.8 the previous month.
America is bracing for another horrific weekly jobless total. Economists predict that more than four million people filed new claims for unemployment benefit last week – which would take the total laid off in the crisis to over 25 million. That’s more than all the jobs created in the last decade.
Jim Reid of Deutsche Bank explains:
Over the last 4 weeks, a cumulative total of more than 22m claims have been made, which is around the number of jobs that were created in the decade of expansion. So it’s no exaggeration to call the scale of the declines unprecedented.
The agenda
- 9am BST: Eurozone composite ‘flash’ PMI for April: expected to fall to 25.9, from 29.7
- 9.30am BST: UK composite ‘flash’ PMI for April: expected to fall to 31 from 36
- 1.30pm BST: US weekly jobless claims figures: expected to drop to 4.5m from 5.2m
- 3pm BST: US composite ‘flash’ PMI for April:
Updated