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 (roughly $256 billion Cdn), Treasury chief Rishi Sunak said the government’s salary support program will be extended through March.
The extension of the program, which sees the government pay 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 U.K. — Scotland, Wales and Northern Ireland — are living under heightened restrictions as a result of surging coronavirus infections.
The extension to the salary support program follows the government’s decision last week to reinstate it at least until Dec. 2, when the lockdown in England is due to end. The Bank of England expects the number of people on furlough to more than double in November to 5.5 million. At the height of the program in the spring, around nine million workers were on furlough.
“I’ve always said I would do whatever it takes to protect jobs and livelihoods across the U.K. 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 warned that the British economy is set for another downturn in the winter but laid out the hope that a recession — widely defined as two straight quarters of contraction — may be avoided. It said the outlook for the economy remains “unusually uncertain.”
The latest restrictions will weigh on an economy that had been recovering from the sharp recession caused by the spring lockdown. During the earlier lockdown, the British economy contracted by around a quarter. It recouped some of that during the summer, though the bank said it was still nine per cent smaller than its pre-COVID level at the end of the third quarter.
In a set of new forecasts, the central bank said it now expects that recovery to end and the economy to shrink two per cent in the fourth quarter before rebounding at the beginning of 2021 — assuming the restrictions start to be lifted. As a result of the latest contraction, it now doesn’t expect the British economy to reach its pre-COVID level until the first quarter of 2022.
The central bank’s increase in the bond-buying program was bigger than the £100 billion (roughly $171 billion Cdn) anticipated in financial markets and is aimed at keeping borrowing rates low to boost lending and ensuring that money keeps flowing through the financial system.
“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 nine-member monetary policy committee, which also unanimously kept its main interest rate at the record low of 0.1 per cent, welcomed the decision by the government to extend the salary support program.
Although the program prevented mass unemployment this year, 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 said 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.