Published: 13th March 2020 (3 Min Read)

The cost of a pint of Heineken remains unchanged. And the price of other drinks too.

That’s not a vaccination for coronavirus, but that aside the nature of the policy announcements today seems to be substantially what we have asked for. In particular we had hoped to see immediate action being taken to ease the potential liquidity constraints on businesses and families.

First, the Chancellor openly stated that the Treasury and the Bank of England are cooperating closely together to have the maximum impact and so ensure that the economic impacts of COVID-19 are temporary.

Second, this morning the Bank of England acted to help the UK economy “bridge a temporary difficult period”:

  • Base rates were cut from 0.75% to 0.25%
  • A new Term Funding Scheme for small and medium-sized enterprises (TFSME) was announced, where banks can borrow for up to four years at the bank rate provided they target the lending towards smaller businesses.
  • The Counter Cyclical Capital Buffer for commercial banks was reduced to zero immediately. The buffer was due to hit 2% by the end of this year, so immediately frees up capital which could be used to facilitate £200bn of new corporate lending, which is equivalent to 13x UK banks’ total new lending from 2019, Carney said, before the impact of the TFSME above.

The Bank has not restarted QE but has pointed out that they may do so. Mark Carney may be leaving this so that the new Governor, Andrew Bailey, can make an immediate impact.

Third, in his Budget, the Chancellor announced a range of schemes to provide cash flow relief:

  • Statutory sick pay for “all those who are advised to self-isolate” even if they have not displayed symptoms
  • Business rates for shops, cinemas, restaurants and music venues in England with a rateable value below £51,000 are suspended for a year
  • A £500m “hardship fund” to be given to local authorities in England to help vulnerable people in their areas
  • A “temporary coronavirus business interruption loan scheme” for banks to offer loans of up to £1.2m to support small and medium-sized businesses
  • The government will meet costs for businesses with fewer than 250 employees of providing statutory sick pay to those off work “due to coronavirus”
  • Plans to make it quicker and easier to get benefits for those on zero hours contracts
  • Benefit claimants who have been advised to stay at home will not have to physically attend job centres

The Chancellor also promised the NHS “whatever it needs” to deal with the crisis.

This is excellent news, but we have a global problem which cannot be solved by one G7 nation alone. Coordinated action from around the globe is required.

A wider commentary on today’s Budget will follow another time. The measures will add to growth in the next few years.