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The British government and the Bank of England joined forces Thursday to provide further support to an economy that is set for a difficult winter following the imposition of new coronavirus lockdown measures.
Hours after the central bank increased its monetary stimulus by a bigger-than-anticipated £150 billion (US$195 billion), Treasury chief Rishi Sunak said the government’s salary-support programme will be extended through March. The move will be a relief to employers and employees in firms that have had to close as a result of the heightened restrictions.
The extension of the programme, which sees the government paying 80 per cent of the wages of people retained by firms rather than made redundant, comes on the day that England is back in lockdown and the other nations of the United Kingdom – Scotland, Wales, and Northern Ireland – are living under heightened restrictions.
Like other nations in Europe, the United Kingdom has seen a sharp spike in new cases in recent weeks and last Wednesday recorded another 492 virus-related deaths, the highest daily number since May. Overall, it had Europe’s highest official COVID-19 death toll at 47,742 up to that point.
The Job Retention Scheme, which was introduced alongside the national lockdown in March and helped keep a lid on unemployment, was due to expire at the end of October and to be replaced by a less generous programme.
However, it was reinstated on Saturday when the government abruptly announced another lockdown for England to last until December 2. The lockdown, which formally came into force on Thursday, will see millions of workers going idle once again as it requires all non-essential venues such as pubs, restaurants, and stores selling items like books, clothing, and sneakers to close. The support package for self-employed workers was also made more generous.
“I’ve always said I would do whatever it takes to protect jobs and livelihoods across the UK, and that has meant adapting our support as the path of the virus has changed,” Sunak told lawmakers.
“It’s clear the economic effects are much longer-lasting for businesses than the duration of any restrictions, which is why we have decided to go further with our support.”
The Bank of England said it expects the number of people on furlough to more than double in November to 5.5 million. At the height of the programme in the spring, around nine million workers, or around a third of the workforce, were on furlough.
The government had for months baulked at calls for an extension, arguing it wasn’t its role to support every job in the economy forever. It was no doubt also concerned about the cost of the programme, which has reached £40 billion.
While welcoming the move, the main opposition Labour Party criticised Sunak for failing to act sooner, a delay that it says generated uncertainty and prompted some firms to dismiss staff in recent weeks. The government said the furlough scheme could be backdated so anyone who was on a payroll on September 23 but then made redundant can be re-employed.
“This cycle of bluster, denial, and then running to catch up is costing jobs and causing chaos,” said Labour’s economy spokeswoman, Anneliese Dodds.
Though the furlough programme prevented mass unemployment, the jobless rate has edged up from a four-decade low of 3.8 per cent to 4.5 per cent, with the likes of British Airways, Royal Mail, and Rolls-Royce all laying off thousands.
On Thursday, supermarket chain Sainsbury’s became the latest big company to announce hefty cuts. It will shed around 3,500 jobs as part of plans to permanently close its meat, fish, and deli counters, as well as some of its Argos standalone stores.
Given the outlook, the Bank of England expects the unemployment rate to rise to a peak of 7.75 per cent in the second quarter of next year.
Sunak’s latest change came after the Bank of England warned that the British economy is set for another downturn in the winter, with the economy forecast to contract a further two per cent in the fourth quarter. It laid out the hope that a recession – widely defined as two straight quarters of contraction – may be avoided but said the outlook remains “unusually uncertain”.
Given that backdrop, its nine-member policymaking panel agreed to increase the bank’s bond-buying programme in an attempt to ensure banks carry on lending to the wider economy. The stimulus was bigger than the £100 billion anticipated in financial markets.
“We believe there is value in acting quickly and strongly to support the economy and avoid the risks of any short-term disruption,” Bank Governor Andrew Bailey told reporters.
The Monetary Policy Committee also unanimously kept the bank’s main interest rate at the record low of 0.1 per cent.
– AP
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