Bank of England pumps £100bn into UK economy – but who gets the money?
Money: the Bank of England has pumped £100 billion into the UK economy to ease the strain caused by the Covid-19 crisis – but you won’t see a single penny of it. In fact, you are more likely to be asked to pay back the investment.
This is a wake-up call.
If you’ve seen reports that the Bank of England is bailing out the UK economy with £100 billion of what’s called QE (quantitative easing), you may have been lulled into a belief that everything’s going to be fine.
You would be mistaken.
The UK economy has taken a pounding because of the Covid-19 crisis. We are currently in the grip of an economic recession that makes the 2008/9 financial crisis look like the temporary misplacement of a back-pocket fiver.
In March, the economy shrank by around six per cent. In April, it shrank by a further 20.4 per cent. This Site doesn’t have numbers for May and June.
That meant 600,000 people lost their jobs between March and May. Many more found themselves suffering 20 per cent pay cuts as they were put on the government’s furlough scheme.
Employers were also put under extreme pressure as they have to pay what’s known as “overheads” – rent/mortgage on the land/buildings they use, power, supplies if they are perishable, and so on.
It is an established economic fact that money pumped into a financial system has a far more beneficial effect, if it goes to the poorest people – those who were hardest-hit by the current crisis, as they were by the financial crisis of 2008/9 before this.
They didn’t see a single penny of the QE that came into the economy after the recession of 11/12 years ago, and they won’t see a penny of the new £100 billion.
In fact, they’ll be told to pay back the cash that the government has provided for them, even though they’ve been given less than enough to survive comfortably as it is.
If This Writer recalls correctly, QE for the financial crisis went no further than the large financial institutions the Bank of England deals with on a day-to-day basis.
These would then lend the money to businesses and other organisations, with a view towards receiving the cash back – with interest – in the future.
The businesses then increase the prices of their goods while depressing the pay they give their workers.
Have you spotted the reason this won’t work?
Source: Coronavirus: Bank pumps £100bn into UK economy to aid recovery – BBC News
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The Treasury projections for May and June aren’t what you would call encouraging at -7.9% and -9.1% respectively are not encouraging (page 4) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/892791/Forecomp_June_2020.pdf
There is also a recent paper in the House of Commons Library on the Covid-19 effect on our economy. It breaks the figures down by sector and also compares the UK with other major economies. https://commonslibrary.parliament.uk/economy-business/economy-economy/economic-updates/coronavirus-record-gdp-fall-in-april/
Contrast the sad litany from Johnson that is described above to Germany’s recovery package.
Boosting spending [Germany].
To boost consumer spending, VAT will be cut from 19% to 16% from 1 July to 31 December this year, a move that will cost the German government €20bn alone.
Families will receive a one-time transfer of €300 for each child.
Meanwhile those who buy electric cars will see the government rebate – an incentive designed to encourage consumers to switch to cleaner vehicles – doubled to €6,000.
Businesses will benefit too. Companies in sectors hardest hit by the crisis – such as hospitality, tourism and entertainment – will receive “bridging help” worth €25bn from June to August.
Restaurants, hotels or event management companies could get up to 80% of their fixed operating costs reimbursed if their revenues have plunged more than 70% compared to a year ago.
The new stimulus package comes on top of a €1.1 trillion rescue package agreed in March, which comprised loan guarantees, subsidies and a shorter-hours programme to avoid job cuts.
Mrs Merkel said the support programme would help “the economy to find its feet and grow again”.
https://www.bbc.co.uk/news/business-52920516