Budget update: Coordinated policy is key

Chancellor of the Exchequer, Rishi Sunak, marked the end of a decade of austerity by adding £30 billion of fiscal stimulus to the UK economy to combat virus-induced economic contraction.

Sunak’s first Budget follows emergency monetary policy measures from the Bank of England, including interest rates cut to 0.25%, removing capital buffers for banks, and injecting cheap credit to the financial system.  

The NHS will get a £5 billion emergency response fund to tackle the coronavirus, and a £500 million hardship fund will be made available to support vulnerable people. Sick leave will be made available from day one for individuals who are self-isolating, and the government will back sick pay for businesses for up to 14 days.

Small and medium-sized business in the UK were also targeted in the Budget, with a slew of tax cuts and extra funding to support companies most at risk of suffering the economic impact of the virus. Cash grants of £3000 will be made to small businesses, and the government will also guarantee 80% of losses on a loan scheme targeting small and medium-sized enterprises.

Other spending announcements include a stamp duty surcharge of 2% for non-resident buyers, £650 million to help rough sleepers, several duty freezes and an increase in the threshold for National Insurance to £9500 – directly making individuals better off by £104.

The UK’s proactive and coordinated fiscal and monetary policy efforts to support the global economy are to be praised. Markets would like to hear a similar tune from the European Central Bank, who make their policy announcement tomorrow, and the Federal Reserve who are expected to loosen monetary policy again at the end of the month.

On the whole, the Pound quickly pared losses after the BoE announcement because markets viewed the policy response as positive for the UK economy. Sterling's reaction to the Budget so far has been relatively muted.