The Bank of England thinks the economy will shrink by less this year than it was feared three months ago but we shouldn’t get carried away.
We are still living through the most severe downturn the UK has experienced for 100 years.
If the Bank’s central forecast is right around a million people will find themselves out of work in the run up to Christmas.
The virus is still with us, social distancing means the recovery from recession will be sluggish. Forecasting what happens next feels like guesswork, the range of outcomes is vast.The Bank is currently assuming there won’t be a second lockdown and that the government will secure a free trade deal with the European Union - let’s hope the Bank is right but those assumptions may prove to be wrong.Unemployment will continue rising in the months ahead as government’s furlough scheme comes to an end.
In the last week alone, a host of retailers, restaurant groups and travel companies have announced plans to let people go. The Bank calculates the Job Retention Scheme has supported 6 million people. It ends in October and the Governor of the Bank thinks it’s right to phase it out.
"I strongly support what the chancellors done. I think it's been an effective scheme. I think it's worked well and supported incomes” Andrew Bailey told ITV News.
He added: “We are going to get to a point when we have to let structural change in the economy take place.
"And that's why I think the chancellor is absolutely right to say we have to get to a point where we can move from one stage to another stage.”
The pandemic and lockdown has changed our behaviour - from online shopping, to working from home, to the way we travel - and Andrew Bailey believes some of that change will prove to be permanent.Extending the furlough scheme runs the risk of the government supporting jobs that aren’t viable anymore.Bailey wouldn’t comment on the timing but he is clear the Job Retention Scheme must be phased out.
Last week, the National Institute for Economic and Social Reform (NIESR) said it was a “mistake” for the government to withdraw furlough support in October.It argued that extending the wage subsidy to sectors still in distress would reduce the number of redundancies ahead and, as a result, would probably pay for itself.