Governor of the Bank of England Andrew Bailey (pictured) has supported the government’s plans to wind down the furlough scheme, saying it was important workers were allowed to “move forward” instead of being kept in unproductive jobs – even if this meant some jobs were made redundant.
His comments came as the bank published new analysis of the impact of lockdown on the economy, which said that while the effect on jobs had not been as severe as predicted in May, unemployment was still likely to increase.
It said that despite the winding down of the government’s support schemes, the majority of workers exiting the furlough scheme were likely to return to work. Because of this, the report said that the impact of unemployment on households would likely be less severe than during the 2008 financial crisis, particularly when looking at levels of household debt.
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The report was not all good news, however. It said a third of earners across income brackets had suffered a loss of earnings of more than 5 per cent, and that unemployment could peak at 7.5 per cent by the end of this year.
The report added these projections were “subject to considerable uncertainty”, not least on how Covid-19’s impact on public health would change over future months.
Speaking to the BBC, Bailey said the UK’s economy had picked up over the last two months as restrictions eased. But, he said: “It’s very unevenly distributed… and the fact that we’ve had a reasonably rapid pick-up to date is very clearly not a signal that it’s going to be like that going forward.”
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He added that, when compared to other countries, the UK economy had a larger share of “social consumption”, including restaurants and entertainment, that required people to be in close proximity.
So far the government’s job retention scheme has supported 9.6 million jobs since it was launched, at a cost of £33.8bn to the exchequer. As of this month, employers have been required to start making national insurance contributions for furloughed workers, part of the tapering of the scheme, which will finish at the end of October.
Think tank the Resolution Foundation recently suggested that half of workers who had been on the scheme could be back at work already, and that the actual number of people on furlough as of the beginning of August was likely to be below 4.5 million, and potentially as low as 3 million.