Rishi Sunak today extended the government’s job furlough scheme until March after more reports that the UK economy is creaking under the strain of COVID-19.
In a major change of policy, the UK chancellor said that the scheme would pay 80% of a furloughed employee’s salary up to £2,500, a reversion back to the original furlough scheme that was supposed to end in October but had already been extended for a month.
Sunak had proposed a new Winter programme that would have seen government support for staff costs drop sharply, but with a new national lockdown starting in England today the chancellor went back to Plan A,
Speaking to Parliament, Sunak said extending the furlough scheme would protect millions of jobs.
In response to criticism that he acted too slowly, Sunak said that people made redundant after 23 September can also be rehired and put on the scheme, while he also guaranteed ongoing support for the self-employed.
The policy will be reviewed again in January, Sunak added.
As well as coinciding with the start of the new month-long lockdown in England, the policy u-turn coincides with job cuts at several household name firms and a gloomy economic assessment from the Bank of England.
John Lewis, Lloyds Banking, Sainsbury’s and construction equipment firm Caterpillar have between them announced thousands of job losses in the past 24 hours.
The Bank of England, meanwhile, warned the UK is heading into another recession as it announced a £150bn expansion of its bond purchase programme to pump more liquidity into the system to cope with the COVID-19 downturn.
In revised economic forecasts, the impact of the new lockdown and recent regional curbs on activity led the bank to forecast the economy would shrink by 2% in the current quarter and by 11% overall in 2020.
Next year’s outlook is also uncertain, said the BoE, with the unresolved issue of Brexit adding to the COVID-19 crisis.
The Bank said its projections assume trade weakens in the first half of 2021 as new trading arrangements with the European Union come into force.
Gross domestic product was likely to grow by 7.25% in 2021 said the Bank, a downgrade from its previous estimate of 9%, while its two-year inflation forecast remained unchanged at 2%.
Unemployment was set to soar to 7.75% in the second quarter of next year.
JP Morgan said that if inflation was weaker than expected next year the BoE would be under pressure to do more and this might mean negative rates in the second half of 2021.
The Bank kept interest rates unchanged today at 0.1%.