Boris Johnson Vows ‘New Deal’ to Rebuild Post-Virus U.K. Economy
(Bloomberg) — Boris Johnson will commit to spending on infrastructure to rebuild the coronavirus-ravaged U.K. economy in a major policy speech Tuesday and say that balancing the books must wait until recovery is secure.
Reprising spending pledges he made before December’s general election, the prime minister will announce the acceleration of 5 billion pounds ($6.2 billion) of investment in roads, schools and hospitals and promise to publish a strategy for further capital spending in the fall.
“We will build build build. Build back better, build back greener, build back faster and to do that at the pace that this moment requires,” Johnson will say, according to extracts of the speech released by his office. What is needed is “a New Deal” and “a government that is powerful and determined and that puts its arms around people at a time of crisis,” he will say.
Johnson won a commanding 80-seat Parliamentary majority by promising to “level-up” left behind parts of the U.K. with spending on infrastructure and skills, but his plans were blown off course as ministers battled the pandemic, which has killed 43,575 people and plunged the economy into recession. As lockdown restrictions are lifted, he is seeking to regain the initiative and deliver on his pledges as the centerpiece of his rebuilding plans.
The prime minister, who has said he will not repeat the austerity policies his party imposed after the 2008 financial crisis, will compare his program to President Franklin Delano Roosevelt’s “New Deal,” which used government spending to help the U.S. out of the Great Depression in the 1930s.
And he’s prepared to increase borrowing to make it happen. In a briefing note about the speech, Johnson’s office said decisions over increasing taxes or cutting services to pay for the debt will have to wait.
“While in the long-term the government must set a path to balance the books, the prime minister is clear that we will not do so at the expense of investing now in the productive potential of the economy, or at the expense of the resilience of the U.K.’s public services,” it said.
With debt higher than GDP for the first time since 1963, Chancellor of the Exchequer Rishi Sunak will “provide an update” on the economy next week. The announcement angered the opposition Labour Party, which wants a full redrawing of the budget to focus on employment.
“Unemployment has climbed to its highest level in a generation, and our country is suffering the worst economic hit of all industrialized nations.” Anneliese Dodds, Labour’s economy spokeswoman said in a statement. “Instead of the Back-to-Work Budget our country needs focusing on one thing — jobs, jobs, jobs — the Chancellor will only be providing an ‘update’ on the economy.”
‘Biggest Bang’
The 5 billion pounds Johnson will allocate to hospital maintenance, school repairs and road improvements on Tuesday is not new money and is a fraction of the infrastructure spending announced in March.
Then, Sunak committed to increase total infrastructure spending across the next five years by 100 billion pounds to a total of 600 billion pounds. While much of that investment was designed to help reduce the U.K.’s long standing regional inequalities in growth and productivity, there are questions over whether such spending is the best way to stimulate the economy’s recovery from coronavirus.
“Infrastructure spending can get the biggest bang for the buck over the longer term, if projects are chosen carefully and boost productivity, but it is hard to find a large number of worthwhile shovel-ready projects that can boost demand quickly in the short term,” Julian Jessop, economics fellow at the IEA, said in an email Monday. “There is also a risk that the government simply takes jobs away from other priority areas, such as house building.”
‘We Must Act’
A delayed National Infrastructure Strategy, which was originally scheduled for March, will be published in the fall, Johnson’s office said. The document will outline plans for “core” services including roads, energy networks, rail, flood defenses and waste.
The economic impact of restrictions to control the virus has been unprecedented, shrinking the economy by 20% in April alone and leaving officials fretting over the long-term scarring effects of what could be the deepest recession in more than 300 years.
While the government’s furloughing plan has ensured the U.K. has so far avoided a wave of unemployment, data suggest the labor market is also weakening, and opposition parties have warned joblessness could soar to levels not seen since the 1980s unless support is extended beyond its scheduled end in October.
There was a reminder Monday that the U.K.’s path out of the crisis won’t necessarily be smooth when Leicester, a city in the English midlands, reimposed recently eased lockdown restrictions and closed schools amd non-essential shops after a spike in cases.
The British Chambers of Commerce welcomed Johnson’s infrastructure spending plans, though said he will need to move fast to achieve his goals.
“The infrastructure delivery plans announced by the prime minister are welcome, but they must take shape on the ground swiftly to give a real confidence boost,” BCC Director General Adam Marshall said in a statement. “In his first inaugural speech, Franklin Delano Roosevelt said, ‘We must act, and act quickly.’ The same holds true in Britain today.”
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OTTAWA – The Canadian economy was flat in August as high interest rates continued to weigh on consumers and businesses, while a preliminary estimate suggests it grew at an annualized rate of one per cent in the third quarter.
Statistics Canada’s gross domestic product report Thursday says growth in services-producing industries in August were offset by declines in goods-producing industries.
The manufacturing sector was the largest drag on the economy, followed by utilities, wholesale and trade and transportation and warehousing.
The report noted shutdowns at Canada’s two largest railways contributed to a decline in transportation and warehousing.
A preliminary estimate for September suggests real gross domestic product grew by 0.3 per cent.
Statistics Canada’s estimate for the third quarter is weaker than the Bank of Canada’s projection of 1.5 per cent annualized growth.
The latest economic figures suggest ongoing weakness in the Canadian economy, giving the central bank room to continue cutting interest rates.
But the size of that cut is still uncertain, with lots more data to come on inflation and the economy before the Bank of Canada’s next rate decision on Dec. 11.
“We don’t think this will ring any alarm bells for the (Bank of Canada) but it puts more emphasis on their fears around a weakening economy,” TD economist Marc Ercolao wrote.
The central bank has acknowledged repeatedly the economy is weak and that growth needs to pick back up.
Last week, the Bank of Canada delivered a half-percentage point interest rate cut in response to inflation returning to its two per cent target.
Governor Tiff Macklem wouldn’t say whether the central bank will follow up with another jumbo cut in December and instead said the central bank will take interest rate decisions one a time based on incoming economic data.
The central bank is expecting economic growth to rebound next year as rate cuts filter through the economy.
This report by The Canadian Press was first published Oct. 31, 2024
