The UK government is planning a huge increase in bond sales to fund its economic response to the coronavirus, selling roughly four times as much debt over the next three months than originally planned in the March Budget.
The Treasury said it will try to raise £180bn from investors in the bond markets over the next three months. The £60bn per month extra borrowing is up from the already huge £45bn the government is raising in April.
That will bring the total amount of capital it aims to raise between April and July to £225bn.
It is also more over the next three months than the £156bn the government had originally intended to sell over the whole financial year.
The Treasury said the government has announced an “unprecedented package of measures to provide the critical support” to the economy throughout the Covid-19 outbreak.
The measures include a scheme to pay 80 per cent of the wages of workers who would otherwise be laid off and paying grants to small and medium-sized businesses.
Government borrowing set to rise
The Centre for Policy Studies think tank this week estimated the UK’s budget deficit – the difference between its revenues and spending – will rise to £300bn this year and have to be borrowed.
The Office for Budget Responsibility (OBR) has said roughly £120bn of that will be due to lost tax receipts thanks to the economic slump. It said GDP could shrink by 35 per cent in the second quarter and 13 per cent in 2020 as a whole.
The Treasury today said its support measures “and the economic impact of Covid-19 will necessarily increase the government’s financing requirement”.
It added that it expects the huge increase in bond sales to be contained in the second quarter and not continue for the rest of the year. It said this clustering is due to “the temporary and immediate nature of the unprecedented support announced for people and businesses”.
However, the government has already extended its wage support scheme by a month after it extended lockdown measures that prevent a swath of businesses from opening.
PwC’s chief economist John Hawksworth said the government will “inevitably” have to borrow more to fund the spending pledges. “This may require total government bond sales in 2020/21 of £300bn or more given also the need to cover the cost of redemptions of previously issued bonds,” he added.
The Bank of England has already said it will buy around £190bn of extra gilts. Hawksworth therefore expects the government to raise the extra money “without too much upward pressure on gilt yields.”