The coronavirus outbreak caught all market participants off guard. To curb the virus, the governments of many countries had to deploy massive packages of stimulus measures. Yet, this surge in spending to save jobs and keep businesses afloat during the lockdown led to a large increase in borrowings. For example, the UK government debt skyrocketed to a record level of £1.9 trillion ($2.4 trillion), or 100.9% of GDP. As a result, government debt exceeded GDP for the first time in half a century.
Notably, the UK had difficulties with budget spending from May 2019 to May 2020. The UK’s public debt ballooned by £173.2 billion ($214 billion) or by 20.5%, its highest level since 1963. However, some economists warn that the worst is yet to come. According to the Bank of England, in 2020, GDP is likely to dip by 14% logging the worst result since 1706. Apparently, such a drop will lead to more borrowings. The country's debt is forecast to amount to £9,000 (about $11,000) per household. This is sure to deliver a harsh blow to the economy. What is more, the level of unemployment is expected to jump from 4 % to 9%.
The government debt broke the ceiling due to a sharp drop in manufacturing and an increase in public spending to to stamp out the coronavirus consequences. In May, government spending climbed by 50% from a year earlier, while tax revenues fell by more than 28%. The volume of borrowings came in at £55.2 billion ($68 billion) in May.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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