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Ulster Bank economist Richard Ramsey

A week of powerful interventions we'll never forget

Richard Ramsey


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A woman passes Canary Wharf as she runs in London

A woman passes Canary Wharf as she runs in London

AFP via Getty Images

A woman passes Canary Wharf as she runs in London

Few weeks have the power of the one we just experienced. Less than a week after a fiscal stimulus of about 1.5% of GDP was announced in the new Budget, the Government realised that this is not nearly enough to fight the consequences of Covid-19 epidemics on the UK economy.

Chancellor Rishi Sunak last Tuesday increased the stimulus 11 times. The focus was mostly on giving support to the businesses through guaranteed loans, tax holidays and cash grants.

And three days later the support was extended to salaries of workers, who are not working but are kept on payroll. Government grants will cover 80% of the salary of retained workers up to a total of £2,500 a month. This is truly unprecedented. But is it enough?

And what a week for Andrew Bailey to take over the reins at the Bank of England. It was a week of emergency action.

On Wednesday Bailey launched a new unlimited commercial paper funding scheme for large businesses. While this scheme was being launched, conditions in the Government bond market were “bordering on disorderly”.

Thursday saw the Bank rate cut to 0.1% - the lowest since the BoE was established in 1694. More importantly, given the bond market situation, was the £200bn of quantitative easing, to purchase Government bonds and lower yields in the largest single shot of quantitative easing to date.

To top it all off, the previously launched emergency SME term funding will be enlarged. The pound saw its deepest eight-day slide since it was ejected from the European exchange rate mechanism in 1992.

On Thursday strains in the UK sovereign debt markets and rumours of a London lockdown sent sterling below $1.15 (a 35-year low) and to almost €1.05.

Governments in France, Spain and particularly Italy have locked down their countries to slow the rapid spread of the coronavirus.

All non-essential businesses have been closed. Germany looks set to follow soon. On the fiscal front, major European countries have announced piecemeal measures to stem the looming downturn, around 1% of GDP.

Support programmes have ranged from providing guarantees for domestic firms and state subsidies to forbearance of tax payments. However, a co-ordinated Euro-wide fiscal response has not been agreed, reflecting political differences.

This is crucial to stemming a prolonged Euro area recession and a potential sharp rise in unemployment.

Richard Ramsey is Ulster Bank chief economist

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