Amid efforts for economic recovery after an unprecedented downturn triggered by pandemic shutdowns, Britain’s public debt has reportedly surpassed its entire economy’s annual output in a historic first. Attempting to mitigate the ramifications of the Coronavirus pandemic, the British government’s total level of borrowings has reached £1.95 trillion, which is 100.9% of the UK’s GDP, for the first time in over 50 years.
In May 2020, the government borrowed a record funding of £55bn, which is approximately nine times higher than the amount borrowed in the same month last year. Moreover, it is also reportedly the highest monthly debt of the UK in over 25 years. As compared to May 2019, UK’s borrowing has increased the debt by £173bn which is the biggest annual jump in recent years. This development will largely affect the efforts of the British government to cut the deficit in the past few years.
With an increase in spendings to cushion the relief measures, all taxes and National Insurance also plunged in May. To support various initiatives such as coronavirus job retention scheme, grants to local authorities, and spendings on public services such as the health sector, the government’s spending increased by £30.6bn in May as compared to the same month last year.
According to Chancellor Rishi Sunak, the virus has had a severe impact on public finances which can be potentially restored by reopening the economy safely in order to ensure a higher level of employment. While policymakers are working on the gradual reopening of the economic activities, recovery is expected to be slow and a long process in view of the global slowdown. At the same time, the government had declared that it would need to borrow an additional £225bn to support the economic recovery during the summer months when business activities will remain low. In a bid to aid the UK government to recover from its worst coronavirus-induced downturn, the Bank of England last week announced to increase an extra £100 billion ($125 billion) into the British economy, bringing the total up to £745 billion ($929 billion) so far. The Bank of England purchasing the government bonds will be providing support to the administration in financing recovery measures at a time when its borrowings are increasing.
With one of the highest COVID-19 related death tolls in the world, the United Kingdom is gradually emerging from the pandemic lockdown. In April 2020, the UK GDP contracted by more than 20%, thousands of businesses closed shops, and job losses mounted. Unemployment in the country is surging despite efforts to resume the economic activities.
The UK has joined the 100pc club of nations with the US, Italy, and Japan after its borrowing surpassed its national income. However, as efforts to recover from the worst economic downturn continue, some City forecasts are expecting the UK’s debt levels to continue rising from the rest of the year.