In an interview with the BBC yesterday, the Governor of the Bank of England (BoE) confirmed he backed the decision of the government to bring the furlough scheme to an end in October. Andrew Bailey confirmed that whilst he thought the scheme had been successful, it was right now to “look forward”.
In its latest Monetary Policy Report, the BoE stated:
- The COVID-19 pandemic has caused a significant shock to the labour market, with many businesses unable to function and demand for labour sharply falling.
- Take up of the Coronavirus Job Retention Scheme (CJRS) has been high, with close to 80% of businesses making some use of the scheme and HMRC recording 9.5 million jobs being were furloughed at some point in recent months.
- The majority of those businesses surveyed who were previously topping up wages for furloughed staff have stopped doing so.
- Inactivity (where an individual is unemployed but not actively looking for work) and underemployment (where an employee is not working at their full capability) have increased. This may be driven by factors such as where school closures mean parents are not available to start a new job so don’t take steps to look for vacancies.
- Many workers have seen a reduction in earnings, average pay growth has fallen and pay reductions or freezes have increased. Pay increases and bonuses are generally being deferred for 2020 save for increases associated with the National Living Wage.
- The rate of redundancies increased in June and July with the heaviest job losses being reported by airline carriers, holiday operators, non-food retailers, car manufacturers and those in aerospace supply chains.
- Some industries such as pharmaceutical, food processing and logistic companies have performed better and have continued hiring staff or have maintained apprenticeship and graduate hiring schemes. Interestingly however, the report also notes that some businesses whose activity have remained strong are also making redundancies – in this case due to the effect of productivity-improving changes made during the pandemic.
- Although the rise in unemployment so far has been limited by the CJRS and increase in inactivity, indicators suggest unemployment has risen and the BoE estimates this will continue to increase in the near future. For example, the report notes the redundancy intention notifications from businesses to the government (known as “HR1” forms) rose in June.
- Unemployment is expected to reach 7.5% by the end of the financial year. How this then evolves in the future will be closely linked to recovery in spending. Given the nature of the “Covid-19 shock”, unlike previous recessions this could be reversed quite quickly with unemployment falling back “fairly quickly”.
- BoE estimates that as social distancing measures continue to ease and sales increase, demand for labour should pick up and most furloughed workers should be re-employed. Data suggests a third of furloughed employees had already returned to work by the end of June and it is expected that more than 50% of furloughed employees will have been back at work by the end of July.
Despite the BoE’s focus on the economy post-furlough, there remain calls on the government to continue to extend the CJRS further. Lib Dem MP and acting party leader Ed Davey has said that the furlough scheme should be adapted to support those “worst-hit sectors and areas still in lockdown” whilst SNP MP Alison Thewliss has advocated for an extension of the CJRS until “at the very least” the end of the year.
The Chancellor Rishi Sunak has to date resisted calls to allow for any more extension of the scheme, however with current cases of COVID-19 rising in the UK and a number of localised lockdowns in place, pressure to continue the scheme in some form seems likely to grow.