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Government announcement amounts to quantitative easing through the back door

Measures announced by the Prime Minister amount to quantitative easing through the back door, says Nimesh Shah.

A number of the Prime Minister’s package of infrastructure initiatives were already planned, but the Government is now bringing forward those projects.

Whilst it’s not a bad move, it’s not strictly additional spending by the Government beyond the pre-pandemic projections.

The decision to accelerate the spending appears to be a move to inject cash into the economy in 2020, which the Government will hope has a knock-on effect to the wider economy. It is essentially a form of quantitative easing through the back door.

It is a welcome move by the Prime Minister, Boris Johnson, and signals the Government’s first steps to re-starting the UK economy following the COVID-19 crisis. But Boris Johnson’s speech is merely setting the scene for the Chancellor to make a more detailed announcement on spending, taxes and economic policy.

There are still a number of unanswered questions which the Government and Chancellor need to address. The Prime Minister left the door partly open for the furlough scheme to remain open beyond October, and this would be incredibly welcome for those in the hospitality, tourism and leisure industry who remain incredibly concerned about trading conditions for the rest of the year.

There is also a big question regarding tax increases and whether the Government are prepared to break their Manifesto pledge. The Government has spent a behemoth amount to date in handling the crisis – much of this cost and future Government spending will come through borrowing whilst the cost of debt is cheap.

I would be very surprised if there were no tax increases, even if they were just temporary. But the Chancellor will be nervous about significant tax increases which could stifle individuals and businesses. For me, this is the ‘elephant in the room’ and the Chancellor needs to set out his agenda soon so that individuals and businesses can start to plan, rather than rushing through policy with no warning.

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