Matthew Lynn Matthew Lynn

Britain’s GDP figures are dreadful but Sunak must still hold his nerve

Rishi Sunak (Getty images)

A five hundred quid shopping voucher for everyone. Five per cent off VAT across the board. Maybe suspending income tax for a couple of months, or getting rid of corporation tax until the end of the year. As today’s disappointing GDP numbers landed on his desk, the Chancellor Rishi Sunak must have been tempted to reach for the Treasury folder marked ‘extreme emergency measures’. The V-shaped recovery he was no doubt hoping to engineer is increasingly looking more like an L – a big drop followed by a flat line.

Another round of government stimulus right now would be tempting. But it would also be a mistake: the Treasury has already borrowed and spent enough. All it can do now is to steadily re-open the economy and let supply catch up with demand. And the most important thing Sunak can do is hold his nerve.

The very worst response would be to panicked into yet more emergency stimulus

The City was hoping for a stronger bounce back in the GDP data. From total lockdown in April there should have been some kind of modest recovery in May. After all, once you reach bottom the only way to go is up. Against a consensus forecast of a 5.5 per cent rise in GDP, however, it turned out there was only a 1.8 per cent increase in output. It barely shifted. Over three months, GDP is now down by 19 per cent. And on an annualised basis, GDP is now down 24.5 per cent. At the start of the year, it would have been hard to imagine a more catastrophic set of numbers.

There will, no doubt, be plenty of calls for the Chancellor to be bold, generous, and decisive. He will be told to spend more money, extend the furlough scheme, and cut more taxes.

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Matthew Lynn
Written by
Matthew Lynn
Matthew Lynn is a financial columnist and author of ‘Bust: Greece, The Euro and The Sovereign Debt Crisis’ and ‘The Long Depression: The Slump of 2008 to 2031’

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