The World In A Week – Fiscal Injection

Last week saw President Joseph Biden’s $1.9 trillion stimulus package passed by Congress, which has seen the Organisation for Economic Co-operation and Development (OECD) accelerate its global growth expectations to 5.6%. The OECD has also increased its US growth forecast from 3.3% to 6.5%.  Americans will expect to see $1,400 paid directly into their bank accounts which should effectively increase consumer spending, keep businesses operational and boost economic activity.  Most of the package ($750 billion) will support the continuation of the US vaccination rollout, with $600 billion set aside in the form of said stimulus checks.  A further $400 billion will aid financially vulnerable households in the form of unemployment benefits of up to $400 a week and the final $150 billion is set to support smaller businesses with loans and grants. US markets welcomed confirmation of President Biden’s stimulus package with the S&P 500 returning +2.09% in GBP terms last week.

The UK’s gross domestic product is estimated to have fallen by 2.9% in January 2021, with the national lockdown reducing the levels of consumer spending and economic activity considerably. Elsewhere, the Governor of the Bank of England, Andrew Bailey stated that he is confident that inflation would not threaten price stability as consumer spending is expected to pick up significantly as we transition out of the national lockdown. The UK inflation rate rose 0.9% in the 12 months to January 2021, well below the Bank of England’s 2% target rate.  Inflation is often measured by the Consumer Price Index (CPI) which measures the price change of a typical basket of consumer goods. This basket of goods has been rightly adjusted to reflect the recent shift in consumer spending habits which has included increased demand for hand-sanitisers and home exercise equipment.

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