Rishi Sunak and The Trillion Pound Bank Note ...

Bad news for the economy this week, "Fears for Tiers" increased. The country was pushed into a second lock down. Covid infections are rising, warnings of an NHS overload emerged.

The Chancellor stepped up to ease the pain. The furlough scheme will be extended to the end of March. Universal credit may be extended, by a further £1,000 next year, for over six million people.

Government borrowing was expected to hit £350 billion in the current financial year, before the new spending plans were announced. The additional support schemes could add a further £30 billion to the spend. Debt levels could hit 20% of GDP this financial year. Not since the World Wars, of the twentieth century, has such excess been experienced in the UK.

The imposition of the second lock down will hit output, in the final quarter. Hotels, leisure, events, tourism, hospitality and the creative sector will suffer. Aviation and travel will be hit again. The motor trade will be damaged further, as showrooms are closed to visitors once more.
 
Non essential retail will be punished, especially in clothing and footwear. The critical run up to Christmas will be disastrous, if the lock down continues well into December. Winners, will be food supermarkets and online traders. The volume of home delivery will boost the parcel and logistics business. Shop early for Christmas, albeit for a smaller turkey this year.

Despite the wave of pessimism, the November lock down will not be as devastating as the first, especially if confined to a four week period. The Bank of England expects GDP output to fall by 11% in the current year. Earlier estimates had suggested a down turn of 9.5%. Unemployment is expected to peak in the second quarter of 2021 with 2.5 million people out of work, a U rate of 7.5%.

Central Government Liabilities will increase to £2.5 trillion before the year is out. How to pay for it all? Step up the Old Lady of Threadneedle Street. The Bank of England increased the level of government debt purchase by an additional £150 billion this month. The total stock of government bond purchases will increase to £875 billion as a result.

The pretense of QE now abandoned, the Bank is the "Buyer of Last Resort". The appetite from domestic pension funds and insurance companies, too low to absorb the flow. The Bank is creating the £1 trillion pound bank note to hand over to the Chancellor. No need to pay interest on the debt ... No need to worry about repayment either ... The Money For Nothing Gilts for Free process continues ...

Confused? Check out our post On Modern Monetary Policy nine points to explain it all.  It's also available as a podcast ...