A raft of new measures will be required to boost Britain’s economy as it emerges from a temporary recovery resulting from huge government financial support and the relaxation of lockdown restrictions, according to a Bank of England policymaker.
Michael Saunders, one of the nine members of the Bank’s interest rate-setting monetary policy committee (MPC), has said he expects unemployment to soar as the Treasury winds down its support and more people start looking for work.
Mr Saunders added that the economy’s faster than expected rally over the last few months was due to a large amount of fiscal stimulus which coincided with the easing of lockdown measures and low infection rates. But this period of recovery is coming to an end.
The monthly survey from CIPS/Markit of construction, which accounts for 6pc of the economy’s output, showed provisional signs that the recovery is losing traction as the rate of expansion slowed in August.
In a speech aimed at highlighting a number of risks to the economy, Mr Saunders referred to the increasing possibility that the UK will fail to conclude a comprehensive trade deal with the EU.
Threat to economy from no-deal Brexit
Although the Bank has been working on the assumption that talks between London and Brussels will be successful, he said the risks probably involve a less substantial trade deal, a less smooth transition or greater continuing Brexit-related uncertainty. Generally, uncertainty regarding global trade policy remains high.
The member of the MPC doubted that the economy’s recovery over the next two years would be as robust as that forecast by the MPC last month, which suggested growth of 9pc in 2021 and just under 4pc in 2022.
In this case, the Bank would have to provide an additional stimulus to boost activity and prevent inflation falling below the Government’s 2pc target. Commenting that the economy’s ‘very limited sweet spot may now be fading’, Mr Saunders said unemployment was bound to rise significantly over the coming months.
He explained that there had been a jump in the number of people working fewer hours than normal; a sharp rise in the number of people temporarily absent from paid work; and the total number of hours worked had fallen by 18pc between the first and second quarters.
These figures, he said, are evidence of a highly significant weakness in the labour market. The stability of the official data on jobs and employment is proof of the general picture of severe weakness.
He went on to say that the percentage of the workforce furloughed had fallen from 30pc to 11pc since May, with those still on the wage subsidy scheme likely to be concentrated in firms not trading or suffering from weak demand. This implies that of those still on furlough, a relatively high proportion may well become unemployed.
TUC urges chancellor to adopt ‘short-time working’ measures
Union leaders have urged chancellor Rishi Sunak to launch a wage subsidy scheme to prevent a ‘tsunami’ of unemployment when furlough comes to an end this autumn.
Requesting that the chancellor follows the examples of some leading European countries to prevent a looming job crisis, the Trades Union Congress (TUC) said a continental-style system of wage support for ‘short-time working’ could be implemented in Britain to save millions of jobs from redundancy.
Under the system, firms struggling to stay in business during the coronavirus pandemic receive a government subsidy for the hours a worker is absent from their job.
Similar schemes are deployed in Germany, Austria and France and have been extended recently because of the increasing risks for companies and workers globally due to the Covid recession.
However, the UK Government is gradually winding down its emergency furlough scheme and will bring it to a close by the end of October. The Bank of England has warned as many as 2.5million people could be out of work by the end of the year once the scheme has been terminated.