By Paul Hannon 

The U.K. government announced up to $38 billion in fresh stimulus measures intended to boost the country's economy as it exits lockdown, a path that is also being considered by other rich nations as they seek to prevent the economic shock of the pandemic from snowballing into a multiyear slowdown that could leave deep scars on their societies, businesses and economies.

Since lockdowns designed to contain the novel coronavirus became widespread in March, governments around the world have committed trillions of dollars to ensuring the survival of businesses that saw their revenues tumble and to supporting household incomes as the number of hours worked plummeted.

The U.K.'s new package marks the start of a second phase of government spending and tax cuts designed to boost demand and give businesses the confidence to put their employees back to work as the lockdown is lifted.

"We need people feeling confident," Rishi Sunak, the government's treasury chief, told lawmakers. "That will drive growth," he said. "That will create jobs."

The package included payments to businesses for retaining furloughed workers, and hiring young people, as well as grants to make homes and public buildings more energy efficient. There were also cuts in taxes on hospitality and home purchases.

Mr. Sunak said the package could cost the government up to GBP30 billion ($38 billion), and said further measures would be announced in the Fall.

"Our plan for jobs will not be the last action," he told lawmakers.

The U.K. isn't the first government to announce measures designed to stimulate the economy as it emerges from lockdown. Last month, Germany detailed measures worth EUR130 billion ($147 billion) for 2020 and 2021.

In the U.S., lawmakers are expected to approve another round of stimulus after the Senate returns from a recess on July 20, although the details of that package have yet to be settled.

European Union leaders will meet next week to consider an economic-recovery plan that would see the bloc take the unprecedented step of borrowing hundreds of billions of euros from the markets to hand out to the member states worst affected by the pandemic's economic fallout.

Even before the latest wave of stimulus measures, the IMF forecast that government debt would hit an all-time high this year and next, exceeding 101% of global economic output and up 19 percentage points from 2019.

However, large central bank purchases of government bonds and strong demand from investors for less risky assets has kept borrowing costs very low. While many businesses and households would face bankruptcy if they experienced such a sharp rise in debts, governments can avoid that fate. In practice, many of the rescue packages announced since the pandemic struck transfer a surge in debt to the public from the private sector.

"This shock is going to cause a very large amount of economic damage," said Michael Spence, a professor of economics at NYU's Stern School of Business. "A lot of these policies are essentially moving that damage to the sovereign balance sheet. It's not that anybody thinks it's ideal, but it may be better than leaving it lying around in the business sector or in the household sector."

The Office for Budget Responsibility, an independent body that tracks the impact of government policies, estimates the total cost of previous U.K. measures designed to help businesses and households recover from the pandemic at GBP132.6 billion.

In the U.K., as in much of the rest of Europe, the most expensive government program has paid the wages of workers who have been furloughed. Figures released Tuesday showed the number of workers covered by the U.K.'s Coronavirus Job Retention Scheme rose to 9.4 million in the week ending July 5, up from 9.3 million in the week ending June 28, with the cost of the program rising to GBP27.4 billion from GBP25.5 billion.

Mr. Sunak said the scheme would be wound down by the end of October, but announced payments to businesses of up to GBP9 billion to persuade them to hold on to those workers into 2021.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

July 08, 2020 09:28 ET (13:28 GMT)

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