UK: £30 billion fiscal stimulus plan bolsters GBP/USD – Deutsche Bank

FXStreet reports that GBP/USD has surged above 1.26, partly encouraged by the new £30 billion fiscal stimulus plan laid out by Chancellor of the Exchequer Rishi Sunak. The detailed program includes a job retention scheme and other means of boosting the economy, economist at Deutsche Bank reports.

“Chancellor Sunak announced a fresh package of fiscal stimulus measures to bolster the recovery, which could be worth up to £30 billion in total. In terms of the main announcements, the biggest is potentially the job retention bonus, whereby employers who bring back furloughed workers can qualify for a £1,000 bonus per employee, provided certain conditions are met. In theory, if all 9.4 million furloughed jobs were retained, then this could be worth £9.4 billion.” 

“The other main highlights include a temporary 9-month VAT cut from 20% to 5% for hospitality, accommodation and attractions, as well as a temporary Stamp Duty cut (the tax paid on home purchases) that will see the threshold rise to from £12K to £500K up to the end of March. And finally, though it was far from the costliest measure announced, one of the most headline-grabbing was an ‘Eat Out to Help Out’ scheme whereby diners will get a 50% discount of up to £10 per head when eating out, valid Monday to Wednesday throughout August.” 

“On the longer term implications, it’s worth noting that in spite of the fiscal largesse yesterday, Sunak said that ‘over the medium-term, we must, and we will, put out public finances back on a sustainable footing.’ So clearly a nod towards future fiscal tightening now that the national debt is over 100% of GDP for the first time since 1963. Furthermore, there was also the acknowledgement that the furlough scheme ‘cannot and should not go on forever.’ We should hear more this autumn when we get the next Budget and Spending Review from the UK government.” 

“For what it’s worth I suspect governments (including the UK) will talk a tough game on fiscal discipline going forward but the reality is that the fiscal genie is now out of the bottle and we’re set for a decade of MMT and helicopter money type policies.”