© Reuters. FILE PHOTO: British Chancellor of the Exchequer Rishi Sunak attends an outside interview in London
By Andy Bruce and David Milliken
LONDON (Reuters) – The UK on Tuesday offered a £ 4.2 billion ($ 6.2 billion) business support package to help ease an expected recession caused by a surge in COVID-19 cases and resulted in a third national lockdown.
Prime Minister Boris Johnson announced the lockdown on Monday, saying a highly contagious variant of coronavirus could overwhelm health care providers within 21 days.
Most people have to work from home and schools are closed to almost all students. Restaurants and non-essential shops must remain closed.
The UK economy is now likely to slide back into recession – shrinking in the final quarter of 2020 and the first quarter of 2021 – after posting a record 25% decline in the first two months of the 2020 lockdown.
The new downturn is expected to be much smaller. Most businesses are much better adapted to remote working now, and construction sites and factories are expected to remain open.
The economists at J.P. However, Morgan still forecast a hefty 2.5% drop in production for the first three months of 2021.
Treasury Secretary Rishi Sunak previously announced £ 280 billion in emergency aid to the economy, including a massive job protection program that will run through the end of April.
As part of Tuesday's additional measures, retail, hospitality and leisure businesses can apply for up to £ 9,000 one-time grants to receive in the coming months, which total up to £ 4 billion, along with £ 600 million in grants for other companies.
"This will help companies get through the months ahead – and most importantly, it will help keep jobs so workers are ready to come back when they can reopen," said Sunak.
In November, government forecasters predicted borrowing for this fiscal year of nearly £ 400 billion, equivalent to 19% of GDP – a peacetime record that can be financed at record-low interest rates, at least for the time being.
The Bank of England is buying government debt and in November increased its asset purchase program to nearly £ 900 billion for use later in 2021.
However, the UK Chambers of Commerce said that Sunak's "drip-feed" approach to business support would cause many to deny themselves for not qualifying for adequate support.
"While this instant cash flow support is welcome to businesses, it won't be enough to save many businesses," said Adam Marshall, general manager of BCC.
The UK suffered the sharpest decline of any Group of Seven economies in the second quarter of 2020, and the Organization for Economic Co-operation and Development has estimated that the UK's recovery will be the slowest of any of its member countries except Argentina by the end of this year.
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