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UK launches £30 billion stimulus plan after interest rate slash

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Mr Sunak announced a package of measures to help companies facing a cash-flow crunch.

London 

BRITAIN launched a £30 billion (S$54 billion) economic stimulus plan just hours after the Bank of England (BOE) slashed interest rates, and announced support for bank lending aimed at warding off the risk of a novel coronavirus recession.

Prime Minister Boris Johnson's new finance minister, Rishi Sunak, said the economy faced a "significant impact" from the spread of the virus, even if it was likely to be temporary.

"Up to a fifth of the working-age population could need to be off work at any one time. And business supply chains are being disrupted around the globe," he said in an annual budget speech to parliament on Wednesday.

"I know how worried people are, worried about their health, the health of their loved ones, their jobs, their income, their businesses, their financial security," he told lawmakers. "And I know they get even more worried when they turn on their TVs and hear talk of markets collapsing and difficult times coming."

"I will do whatever it takes to support the economy," he added.

Mr Sunak, who has only been in the job for a month, announced a package of measures to help companies facing a cash-flow crunch, including a year-long suspension of a property tax paid by smaller firms.

"Our economy is robust, our public finances are sound, our public services are well-prepared," he said.

He also said companies and self-employed people would be able to defer tax payments, and he relaxed sick-pay qualification rules for workers and people on benefits.

Britain's health system and other public services would receive an extra £5 billion to help counter the spread of the novel coronavirus.

Mr Johnson had hoped the first tax-and-spending plan of his new government would showcase his plans to direct investment towards poorer regions, where voters helped him to a big election victory in December.

But with medical officials warning of an expected jump in Covid-19 cases in the coming weeks, Mr Sunak had to fund new spending priorities.

Still, he expects a jump in public investment over the next five years at levels not seen since 1955, representing a turning point for the world's fifth-biggest economy after a decade of austerity to narrow its budget deficit.

Against a backdrop of plunging stock markets worldwide and signs of a slowdown appearing in Britain's economy, the BOE cut its key rate by half a percentage point to 0.25 per cent, echoing last week's emergency move by the US Federal Reserve.

The bank also introduced a new programme for cheap credit and reduced a special capital buffer to give banks more room to lend.

"This is a big package. It's a big package. It is a big deal," BOE governor Mark Carney said, adding that the measures were equivalent to "north of 1 per cent" of economic output.

He said the bank was co-ordinating with the government to have "maximum impact".

Britain's economy unexpectedly flat-lined in January even before the impact of Covid-19 kicked in, said official data published on Wednesday.

Mr Sunak said he would be able to meet the fiscal rules set by his predecessor Sajid Javid, although the rush to come up with measures to fight Covid-19 meant the full stimulus cost was not yet included in borrowing forecasts.

Britain's independent budget forecasters lowered their forecasts for economic growth this year. That estimate does not yet include an updated estimate for the impact of the virus.

But Mr Sunak said growth over the next two years would be 0.5 percentage points higher than it would have been without his stimulus plan.

Usually a smiling, energetic media performer, he was grave as he appealed for cross-party unity to tackle the epidemic and its fallout.

"This house (parliament) has always stood ready to come together, put aside party politics and act in the national interest," he said. "We have done so before. And I know we will do so again." REUTERS

READ MORE: UK announces emergency rate cut, budget boost in two-pronged stimulus programme