UK steps up fight against coronaviruses in Johnson government's first budget

LONDON (Reuters) – New UK finance minister Rishi Sunak will pledge billions of pounds to fight the impact of coronavirus on Wednesday, and the Bank of England could add firepower to the attempt to ward off the risk of another recession.

Sunak, who has been in office for less than a month, will present the first budget of the government of Prime Minister Boris Johnson in a context of stock market downturn and the haste of world decision-makers to give more stimulus to their economies.

The tax and spending plan – which Sunak will announce to Parliament around 12:30 p.m. GMT – was presented as a chance for Johnson to direct investment to the poorest regions, where voters helped him to achieve a great electoral victory in December.

A jump in public investment over the next five years, at what Sunak says are never seen since 1955, represents a turning point for the world's fifth largest economy after a decade of austerity in reducing its budget deficit .

But while the Johnson government is now focusing on how to deal with an expected increase in coronavirus cases, Sunak has new spending priorities that could force him to loosen auto borrowing rules. imposed by the government.

"I can say categorically that the NHS will get all the resources it needs to help us get through this crisis and respond to the health crisis," Sunak said on BBC television on Sunday, referring to the British National Health Service. .

The 39-year-old former Goldman Sachs analyst also said he would help companies cope with a cash flow crisis if their workers and customers stayed in large numbers.

Possible measures included deferment of tax payments. Sick leave rules could be changed to help more workers.

Britain is expected to issue the highest amount of public debt in nearly a decade in the coming year, according to a Reuters dealer survey.

ACTION OF THE BANK OF ENGLAND ALSO?

So far, the Bank of England has not followed the example of the US Federal Reserve which precipitated an emergency drop in interest rates while global stock markets started to recover last week.

Andrew Bailey, who takes office as governor of the BoE next week, said last week that the central bank needed more time to assess the impact of the coronavirus, but he suggested that it could revive a system that encouraged bank lending.

Other BoE officials said new liquidity programs could help bank credit continue to circulate.

Three of the largest UK banks offer loan repayment holidays to customers.

However, Britain faces a short-term economic impact from the coronavirus, said economist Elizabeth Martins at HSBC.

"Providing stimulants will not bring people to restaurants and the movies if they stay at home to avoid infection," said Martins.

Investors are also worried about the risk that Britain and the European Union fail to reach a post-Brexit trade deal that could shake the economy later this year.

But given the magnitude of the coronavirus alarm, Sunak should loosen government fiscal rules to give itself more leeway to increase spending on public services.

Sunak told the Sunday Telegraph that he is considering proposals "with interest" to reclassify certain daily expenses as public investment, which faces a less restrictive rule.

Investors have so far shown no drop in demand to buy UK debt as demand for safe haven government bonds soars around the world while the coronavirus is spreading.

British gilt yields hit record lows this week and the two-year benchmark yield became negative for the first time.

Writing by William Schomberg; additional reporting by Andy Bruce and David Milliken, edited by William Maclean

Our standards:Principles of the Thomson Reuters Trust.

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