• Sunday, June 26, 2022

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Sunak says ‘investment was vital to aid the recovery’ as the UK to witness biggest contraction in over 300 years

(Photo by TOLGA AKMEN/AFP via Getty Images)

By: Pramod Thomas

BRITAIN will borrow almost £400 billion this year to pay for the massive coronavirus hit to its economy, finance minister Rishi Sunak said on Wednesday(25), as the budget deficit jumps to its highest since World War Two.

Sunak told parliament that the UK economy was set to contract by 11.3 per cent this year, the worst performance in more than three centuries.

However, he added that investment was vital to aid the recovery.

The world’s sixth-biggest economy is likely to grow by 5.5 per cent in 2021, Sunak said as he announced a one-year spending plan.

“Our health emergency is not yet over. And our economic emergency has only just begun,” he told parliament. “So our immediate priority is to protect people’s lives and livelihoods.”

Sunak confirmed that the National Health Service (NHS) would receive a boost totalling £3bn.

The military is to receive billions of pounds extra over four years in the biggest such investment since the end of the Cold War, as Britain positions itself for its post-EU future.

In total, the government plans to spend £55bn on public services linked to coronavirus next year.

Announcing the latest forecasts from the Office for Budget Responsibility (OBR), Sunak said public borrowing would be £394bn ($526bn) in the 2020-21 financial year that began in April.

That was equivalent to 19 per cent of gross domestic product, the highest ever during peacetime and almost double its level after the global financial crisis which took nearly a decade of unpopular spending cuts to work down.

Last year, borrowing was just over £56bn, or 2.5 per cent of GDP.

The OBR said the economy was only likely to regain its pre-crisis size at the end of 2022.

Sunak has rushed out emergency spending and tax cuts to offset the crisis, including a recent extension of the government’s centrepiece jobs protection scheme.

Sunak said the cost of the fight against coronavirus was now £280bn pounds this year, up from a previous estimate of about £200bn.

Over this year and next, day-to-day spending will rise in real terms, by 3.8 per cent, the fastest growth rate in 15 years, Sunak said, adding that £100bn would be spent next year on longer-term investment, £27bn more than last year.

He also announced a reduction in Britain’s foreign aid budget.

“I want to reassure the House that we will continue to protect the world’s poorest, spending the equivalent of 0.5 per cent of our national income on overseas aid in 2021,” Sunak said.

“And our intention is to return to 0.7 per cent when the fiscal situation allows.”

Britain is also facing the risk of a trade shock in less than six weeks’ time when its post-Brexit transition deal is due to expire. No new trade agreement has yet been reached with the EU.

The UK has been one of the worst-affected countries in the world in the outbreak, registering almost 56,000 deaths.

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