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LONDON — 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 pounds ($195 billion), Treasury chief Rishi Sunak said the government’s salary support program 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 and face depressed demand when they are allowed to reopen.
The extension of the program, which sees the government pay 80% of the wages of people retained by firms rather than being made redundant, up to 2,500 pounds a month, 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.
Like other nations in Europe, the U.K. has seen a sharp spike in new cases in recent weeks and on Wednesday recorded another 492 virus-related deaths, the highest daily number since May. Overall, it has Europe’s highest official COVID death toll at 47,742.
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 program. However, it was reinstated on Saturday when the government abruptly announced another lockdown for England to last until Dec. 2.
The lockdown 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.
“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,” Sunak told lawmakers.
The extension was welcomed by all types of businesses as it relieves the pressure on them in what would traditionally be the busiest and financially most important time of the year — the run-up to Christmas.
“Hospitality is facing a tough winter, so this enhanced support is crucial and will safeguard jobs and help businesses to plan for more certain future,” said Kate Nicholls, CEO of the U.K. Hospitality lobby group.
The Bank of England estimates that the number of people on furlough will more than double in November to 5.5 million. At the height of the program in the spring, around 9 million workers, or around a third of the workforce, were on furlough.
The government had for months balked 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 program, which has reached 40 billion pounds.
While welcoming the move, the main opposition Labour Party criticized 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 Sept. 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 program prevented mass unemployment, the jobless rate has edged up from a four-decade low of 3.8% to 4.5%, 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.
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 2% 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 program in an attempt to ensure banks carry on lending to the wider economy. The stimulus was bigger than the 100 billion pounds anticipated in financial markets. The Monetary Policy Committee also unanimously kept the bank’s main interest rate at the record low of 0.1%.
“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.
Pan Pylas, The Associated Press