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A year of Covid lockdowns cost the UK economy £251bn

A year of Covid-19 lockdowns has cost the UK economy £251bn – the equivalent of the entire annual output of the south-east of England or nearly twice that of Scotland, according to a report published on Monday.

Analysis by the Centre for Economics and Business Research found that while the whole of the country had suffered huge damage from restrictions on activity since the first national lockdown began, some poorer regions had suffered the most.

The consultancy said the north-south gap would widen unless the government took steps to ensure that the less well-off parts of the UK did not disproportionately bear the economic losses caused by the pandemic.

Sam Miley, a CEBR economist, said the report compared his organisation’s pre-Covid-19 forecasts for the UK with the level of output 12 months after Boris Johnson told Britons that they had to stay at home.

Gross value added (GVA) – which measures the value of the goods and services produced by the economy, minus the costs of inputs and raw materials needed to deliver them – was more than £250bn lower than it would otherwise have been, Miley said.

“Consumer footfall has plummeted, businesses are still shut, and many individuals have found themselves out of work. Further bouts of area-specific restrictions have added some regional variation to economic fortunes, a matter made all the more pertinent given the government’s promises to ‘level up’,” he said.

“These factors, amongst countless others, have entailed a huge cost to the UK economy, in addition to the devastating cost of thousands of lost lives.”

In absolute terms, the losses in London were the highest of any region, amounting to £51.4bn of lost activity. This was followed by the south-east and east of England, with losses of £34.7bn and £26.6bn respectively.

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But the CEBR said a different picture emerged when the size of each region’s contribution to the economy was factored in.

London accounted for just under a quarter of the UK’s GVA but had suffered just over a fifth (20.5%) of the losses since the start of the pandemic. This could be explained by London’s reliance on sectors such as finance and insurance, and information and communication, which had exhibited the smoothest transition to working from home.

By contrast, Scotland, Wales and regions such as the West Midlands, East Midlands, and the East of England, had suffered Covid-induced losses larger than their typical contributions to the economy.

Miley said that despite the anticipated recovery in the economy once lockdown restrictions were eased, some regions could be more subject to lingering effects from the pandemic, such as higher rates of joblessness and a greater degree of business closures.

“If the government is truly committed to addressing regional imbalance, it will not allow these areas to disproportionately bear the weight of the losses brought on by the pandemic. To do otherwise would risk further divergence in fortunes.”

This month, the Office for National Statistics said output as measured by gross domestic product (GDP) was 9% below where it was in February 2020, the last month before the first lockdown.

A separate report from the Learning and Work Institute has suggested that Britain’s economic recovery from the Covid crisis could be hampered by a looming digital skills crisis caused by a sharp fall in the number of young people taking IT courses.

The LWI – an independent policy, research and development organisation – said the number of young people taking IT subjects at GCSE had fallen by 40% since 2015, and the numbers taking A-levels, further education courses and apprenticeships were also declining.

It found less than half of UK employers believed new entrants to the workforce were arriving with the necessary advanced digital skillset.

The mismatch between the rising demand for digital skills and the supply of sufficiently trained recruits was already costing the economy billions of pounds and the potentially “catastrophic” gap would widen over time without urgent action, it said.

Source: Hellenic Shipping News

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UK unemployment falls for first time in Covid-19 pandemic

Unemployment in the UK has fallen for the first time since the coronavirus pandemic began despite the toughest lockdown measures since the first wave spread a year ago, according to official figures.

The Office for National Statistics said the unemployment rate fell back slightly to 5% in the three months to January, representing 1.7 million people – down from 5.1% in the three months to December. City economists had forecast a rise in the jobless rate to 5.2%. The government’s furlough scheme continues to support the jobs market, with millions of people still on the emergency wage scheme.

The latest snapshot showed a 68,000 increase in the number of workers on company payrolls in February, compared with January, as the roadmap out of lockdown restrictions boosted prospects. It was the third consecutive monthly increase.

However, the number of people on payroll has plunged by 693,000 since the start of the pandemic, with younger workers under the age of 25 accounting for 60% of the jobs lost since February 2020. More than half of the fall was in hospitality, while almost a third was in London.

The unemployment rate remains 1.1 percentage points higher than a year ago before the pandemic struck. Figures compiled by the ONS also showed the number of non-UK born workers in the final quarter of 2020 was half a million lower than a year ago.

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Suren Thiru, the head of economics at the British Chambers of Commerce, said furlough and greater clarity provided by the government’s unlocking roadmap, as well as firms adapting to lockdown restrictions, had helped the jobs market.

“Extending furlough will limit the peak in job losses. However, with many firms struggling with the damage done to their cashflow by a year of Covid restrictions, unemployment is likely to remain on an upward trajectory until well beyond a full reopening of the economy,” he said.

The number of workers on furlough has risen to almost 5 million as the toughest lockdown measures since the first wave of the pandemic weigh on the economy. After repeated attempts to close the scheme last autumn when redundancies were rising at the fastest rate on record, Rishi Sunak used this month’s budget to extend furlough until the end of September.

Unemployment is expected to peak at 6.5% at the end of this year after the scheme ends, according to forecasts from the Office for Budget Responsibility.

The chancellor said supporting and creating jobs had been his focus throughout the pandemic. “The continued success of the vaccine rollout provides us with hope for the future, and through our plan for jobs, we will continue to support people throughout the months to come,” he said.

Source: The Guardian

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UK Economy Has Endured A Torrid Start To 2021, Hit By A New COVID-19 Lockdown

UK economy has endured a torrid start to 2021, hit by a new COVID-19 lockdown and disruption caused by the country’s less open trade relationship with the European Union.

While better days are ahead, Bank of England officials meeting ahead of Thursday’s monetary policy announcement must weigh up the likely strength of the recovery, the lasting damage caused by the pandemic, and how much inflation might result.

Here are a selection of indicators that chart the progress of Britain’s economy so far this year:

BIG PICTURE: GDP, EMPLOYMENT STILL FAR BELOW NORMAL

The latest official data showed UK economy contracted in January, although not by as much as feared by some economists. Output remained 9% below its level in February 2020.

Tax office estimates of the number of employees on payrolls showed tentative signs of recovery in January. But they remain more than 700,000 below the pre-pandemic norm.

BoE Governor Andrew Bailey said on Monday he thought economic output would recover to its late-2019 level by around the end of 2021, helped by Britain’s speedy roll-out of COVID-19 vaccines.

IS THE INFLATION TIGER PROWLING?

BoE Chief Economist Andy Haldane last month described the threat of inflation as a tiger that was beginning to stir. Most of his Monetary Policy Committee colleagues sound less worried.

Gauges of price pressure in Britain paint a mixed picture.

The BoE’s rate-setters will find no cause for alarm in the latest surveys of inflation expectations among the British public, which have shown little change of late.

But companies are increasingly reporting increased cost pressures, especially among manufacturers and construction companies that are struggling with supply chain problems, according to the latest IHS Markit/CIPS surveys.

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TRADE TROUBLE

Trade between the United Kingdom and the European Union was hammered in the first month of their new post-Brexit relationship, with record falls in goods shipments in both directions as COVID-19 restrictions continued on both sides.

British goods exports to the EU, excluding non-monetary gold and other precious metals, slumped by 40.7% in January compared to December, the Office for National Statistics said on Friday. Imports fell by 28.8% – another record.

The ONS said the COVID-19 pandemic, which put Britain back under lockdown measures in January, made it hard to quantify the Brexit impact from new customs arrangements, and there were changes in the way data was collected.

But there were also signs of a Brexit hit.

GILT YIELDS ON THE RISE

British government borrowing costs – measured by the yield on the benchmark 10-year gilt – have increased by more than 50 basis points over the last three months, the biggest increase in over four years.

The rise reflects the better prospects for UK economy as the country races ahead with its coronavirus vaccination campaign and a jump in U.S. Treasury bond yields on the back of U.S. President Joe Biden’s $1.9 trillion stimulus plan.

Finance minister Rishi Sunak says Britain’s stock of government debt is increasingly sensitive to rising interest rates. Some economists think that would only be a problem if borrowing costs went up without an economic recovery that would boost tax revenues for the government.

Despite the recent rise, borrowing costs are at historically low levels, with the 10-year gilt yielding 0.833% on Wednesday – similar to rates seen in late 2019 and way down from more than 5% shortly before the 2008-09 global financial crisis.

Reporting by Andy Bruce

Source: Reuters

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BoE said UK economy is rebounding ahead of schedule

Government borrowing costs hit a one-year high as markets repriced for recovery and inflation after the Bank of England said the economic rebound was ahead of schedule and kept monetary policy on hold yesterday.

Ten-year gilt yields rose 0.04 percentage points to 0.9 per cent after the Bank said that the news on near-term economic activity had been positive since last month. The break-even inflation rate, a market proxy for inflation expectations, rose to its highest level since early 2019.

The Bank of England expects inflation to return “swiftly” to the 2 per cent target but said it can see no sign of an underlying surge in prices. It shrugged off concerns about rising borrowing costs, saying that an aggregate measure of UK financial conditions had been broadly unchanged since February.

The assessment came in the minutes of this month’s monetary policy committee meeting, at which the nine members voted unanimously to hold rates at 0.1 per cent and leave the quantitative easing programme unchanged at £895 billion. It has £110 billion of the programme to complete by the end of the year.

The decision not to respond to higher gilt yields, which have risen fourfold this year, echoed the US Federal Reserve but stood in contrast to last week’s decision by the European Central Bank to step up the pace of quantitative easing. The ten-year gilt yield later slipped back to 0.875 per cent but remained at its highest level since last March.

The Bank made it clear that the economy is on track for a swifter rebound than it forecast last month but stopped short of announcing an upgrade. A full assessment will be in its May outlook.

The 2.9 per cent fall in GDP in January was “less weak than expected” and the government’s road map out of lockdown “envisaged that restrictions could be lifted somewhat more rapidly than had been assumed”.

Recent events were “consistent with a slightly stronger outlook for consumption growth in the second quarter than had been anticipated” and a “more moderate” rise in unemployment. The February forecast was for unemployment to peak at 7.75 per cent later this year and the economy to recover to its pre-crisis level by the start of 2022.

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Andrew Bailey, the governor, has signalled that the Bank is likely to move closer to the Office for Budget Responsibility’s forecast that unemployment will peak at 6.5 per cent.

The minutes added that Rishi Sunak’s £65 billion budget stimulus was a “material fiscal loosening in the near-term” while America’s $1.9 trillion stimulus was twice as large as expected and “ would have spillover effects for demand across the world, including in the UK”.

Andy Haldane, the chief economist, said: “As I’ve been saying for months . . . I do think more likely than not we are [set] for a rapid-fire recovery. That is coming, and I think that is coming soon.”

The committee was divided on whether the medium-term outlook for growth and inflation had changed. “Different MPC members placed different weights on the balance of risks around the outlook,” the minutes said.

The Bank of England reiterated that it would not change policy “at least until there was clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2 per cent inflation target sustainably”.

Martin Beck, UK economist at Oxford Economics, said: “The policy outlook continues to be one of inaction for the next few years.”

Source: Business Matters

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Post-pandemic changes will lead to growing need for second-charge mortgages

In a year in which positivity has been at a premium, it’s difficult not to feel a little optimistic at the moment.

It has been an incredibly testing 12 months for everyone, but there does appear to be some light at the end of the tunnel with just a few short months until – hopefully – social distancing is a thing of the past.

The impact of the pandemic on our finances will continue to be felt for some time, however.

The fact businesses will take some time to get back onto their feet led to Chancellor Rishi Sunak, announcing at the Budget that the furlough scheme is to be extended until September.

For some businesses, that support is still not enough though, with the Office of Budget Responsibility forecasting unemployment to reach 2.2 million this year.

There’s no escaping the fact that an awful lot of people are going to be feeling the financial pressure and having to make their money stretch further in the months ahead.

Balancing the budgets

Some borrowers may focus their efforts on trimming the usual monthly spending, moving to a cheaper supermarket for example or ditching those subscriptions that they don’t really make use of.

But others will look at their debt repayments, from personal loans to mortgages, and look to their trusted mortgage advisers for help.

Second-charge mortgages will undoubtedly be the solution for some of these clients. One of the most common uses for second-charge mortgages over the years has been debt consolidation.

Keeping track of a handful of different loans, interest rates and repayment dates can be stressful enough when times are good, never mind in a post-pandemic environment.

Bringing them together in one place makes sense, but a traditional remortgage may not be an option due to the risk of incurring early repayment charges or having to move up an LTV band and therefore ending up with a more costly interest rate.

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That’s where second-charges become so useful, as the borrower can tap into the equity they hold in the property, consolidate those various commitments into a single loan at a competitive rate, and leave that existing mortgage deal untouched.

As an industry, we are already seeing a sharp jump in interest in second-charge mortgages. Indeed, recent analysis suggested second-charge lending in February totalled £69.6m, up by 14.4% on the month before.

That corresponds with our own activity and is a clear sign that 2021 could be a bumper year for seconds. And that presents a big opportunity for mortgage advisers.

No longer an afterthought

Second-charge mortgages aren’t the afterthought for mainstream advisers that they once were. Part of that inevitably comes down to the influence of the regulator, ensuring an integral part of the advice process includes evaluating whether a second-charge mortgage could be the answer for your client.

But there is far greater understanding among advisers too of the role that second-charge mortgages can play, and not just for debt consolidation purposes.

A year of home working has inevitably led to many homeowners looking afresh at their properties and how they might be reconfigured to work more effectively as not only a place to live, but to work in as well.

Not all advisers are entirely comfortable with second-charge mortgages though, particularly following the FCA’s ‘Dear CEO’ letter last year which announced its intention to continue closely reviewing the seconds sector, and the advice being given.

That’s where picking the right partner can prove invaluable, whether that’s going through a master broker or working with a lender.

There is no question that you will have clients this year for whom a second-charge mortgage will be the best answer.

Now is the time to ensure you have the right processes in place for handling those cases.

By Steve Brilus

Source: Mortgage Introducer

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BoE governor is not expecting soaring inflation despite pent-up demand

BoE governor has said he is more positive about the future of the economy but added the optimism comes “with a large dose of caution”.

Andrew Bailey told BBC Radio 4’s Today programme that risks and uncertainty remain, including how much of the accumulated £180 billion unintentionally saved by high and middle-income households will be spent once restrictions ease.

Some economists have warned that the pent-up demand could lead to high inflation, but Mr Bailey said the central bank does not expect inflation to hit suggested heights of between 4% and 5%.

Instead, he believes it will return to around 2% in the next few months.

I think there will be for many people more of a hybrid model of working at home and working in a place of work… I would be very surprised if we went back to exactly as we were before Covid

Andrew Bailey, Bank of England

Mr Bailey also said he does not believe office workers will ever return to the pre-Covid five-days-a-week commute, with most employees working in a hybrid model.

The governor said: “I think we will see things change, because I think some habits and some practices will prove to be sustainable.

“I think there will be for many people more of a hybrid model of working at home and working in a place of work… I would be very surprised if we went back to exactly as we were before Covid.”

On the economy, he said: “We now have a more balanced picture of risks… The risks on the upside are that there has been a very large build-up in savings in the economy, largely because people have not been able to do the things they normally do.

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“The question of course then is: to what use will those savings be put and over what period of time? It could introduce more consumption and more demand into the economy.”

He pointed out that around 5% of savings could be spent over the next two years but “it could be larger”.

It has affected the low paid more, because the sectors of the economy that have had a larger shutdown tend to have a greater concentration of low-paid workers

Andrew Bailey

Mr Bailey said the effects of Covid have been very unequal, hitting the poorest hardest – with unemployment still expected to rise.

He said: “It has affected the low paid more, because the sectors of the economy that have had a larger shutdown tend to have a greater concentration of low-paid workers.

“I would also add that there are more women in that section of the labour force. I think there is a greater ethnic proportion in that labour force (too).”

Any new Covid variants that require further restrictions and lockdowns would also knock the economy, he added.

But the governor said the Bank of England was ready to use more “firepower” if required, including the introduction of negative interest rates to encourage spending.

Source: Shropshire Star

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Home repossessions allowed from April but as last resort

Home repossessions may take place from April but only as a last resort, the City regulator has said.

A ban is in place on home repossessions except in exceptional circumstances until April 1.

The Financial Conduct Authority (FCA) has published updated draft guidance for firms from April.

Firms will only be able to enforce repossessions if they act in line with the guidance and should treat customers fairly.

The FCA said: “Repossession should only take place as a last resort if all other reasonable attempts to resolve the position have failed.

“Firms will also need to comply with any relevant legislative requirements which may prevent firms from enforcing repossession in certain parts of the UK.”

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The FCA is inviting feedback on its proposals by 10am on March 10.

It said delaying home repossessions can lead to poor customer outcomes as debts mount and therefore it proposes to allow firms to repossess homes when it is fair and reasonable to do so.

The regulator is also reminding borrowers that the deadline for payment holiday applications is March 31.

From April 1, consumers who are newly impacted by coronavirus, or find themselves impacted again, should still receive tailored support from their lender which reflects their individual needs and circumstances.

The FCA said it will continue to monitor and supervise how firms are implementing its guidance, to ensure they continue to provide consumers with support that reflects the challenges that they face. It will publish the findings of its initial supervisory work in this area by the end of March.

By Vicky Shaw, PA Personal Finance Correspondent

Source: Belfast Telegraph

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UK economy boom: Britain ‘will recover quicker than the eurozone’

THE UK ECONOMY will recover quicker than the eurozone does following the coronavirus pandemic, an economist tells Express.co.uk.

The biggest economies in Europe were brought to a stand still last year, and intermittent lockdown measures have taken their toll. But as the vaccine rollout in the UK accelerates, Bank of England Governor Andrew Bailey said recently that there is “light at the end of the tunnel”. The EU’s rollout has been hit with delay, and Chief Economist at Resolution Foundation, Jack Leslie, tells Express.co.uk that the UK economy is set to enjoy a quicker recovery than the eurozone. He said that this recovery will be sharper because of the successful distribution of jabs, but also because the UK economy endured a deeper recession initially.

Mr Leslie said: “I think the starting point is that the UK economy has fared worse over the past year than most of Europe. Countries like Spain Italy and France have also fared pretty badly.

“Most in Europe have had a better crisis, so there’s more scope for the UK to have strong growth in 2021 than Europe, so I would absolutely expect the UK to have stronger growth this year.

“The faster vaccine rollout will be a big deal, it has been a major success and will enable the UK to recover faster as well, but I think ultimately what a lot of the recovery is going to need is globally everyone getting back on their feet, it will be positive for the UK if Europe also has a strong recovery.”

The UK economy suffered a record annual slump in 2020, shrinking by 9.9 percent last year as coronavirus restrictions hit output.

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The contraction in 2020 “was more than twice as much as the previous largest annual fall on record”, the Office for National Statistics (ONS) said.

Britain’s annual economic decline was the worst in the G7.

GDP fell by 3.5 percent in the US, by five percent in Germany, 8.3 percent in France and 8.9 percent in Italy.

The Canadian economy is forecast to have shrunk by five percent, and Japan’s by about 5.6 percent.

However, the UK fared better than Spain, where the economy collapsed by 11 percent last year.

Britain also managed to avoid a double-dip recession, something Europe looks set to endure.

Marcel Klok, senior economist at ING, said last month: “With lockdowns extended into the new year, it really feels like it is darkest before dawn in the euro zone. In the first quarter, GDP is all but certain to contract again and the question is now by how much.

“The combination of lockdowns and vaccinations will allow for more substantial reopening of economies over the course of the second quarter. This will then also mark the start of the recovery of the euro zone economy.”

The UK and EU have also clashed again over vaccines after European Council President Charles Michel accused the UK of blocking the export of coronavirus vaccines.

Foreign Secretary Dominic Raab sent a letter to Mr Michel on Tuesday night dismissing suggestions Britain had banned exports of the life saving doses.

He said: “I wanted to set the record straight. The Government has not blocked the export of a single COVID-19 vaccine or vaccine components.

“Any references to a UK export ban or any restrictions on vaccines are completely false.”

Mr Michel had said that Britain and the US “imposed an outright ban on the export of vaccines or vaccine components produced on their territory”.

By CHARLIE BRADLEY

Source: Express

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How many jobs could be lost when furlough ends?

RISHI SUNAK’s big spend Budget revealed earlier this week that schemes such as furlough and SEISS are here to stay beyond the proposed end of lockdown restrictions. But many are still fearful of what’s to come when the Chancellor finally ends the support.

The Chancellor has made no secret of the fact he cannot save every job. Rishi Sunak said: “Our Covid support schemes have been a lifeline to millions, protecting jobs and incomes across the UK. There’s now light at the end of the tunnel with a roadmap for reopening, so it’s only right that we continue to help business and individuals through the challenging months ahead – and beyond.”

Despite the fact the extension has been welcomed and will be a chance for businesses to catch their breath following the worst of the pandemic and before support comes to an end, job losses are still likely to be inevitable in the autumn.

Hundreds of thousands of jobs were lost in October when the Chancellor left it too late to announce an extension to the scheme in the face of mounting new cases and an inevitable lockdown on the way.

With the extension and amendments to the scheme, the Chancellor is looking to soften what will be an inevitable blow to jobs across the country.

As the furlough scheme progresses, support will taper down, with employers being asked to contribute 10 percent towards the hours staff do not work in July and this will increase to 20 percent in August and September.

Gary Hemming told Express.co.uk: “When the furlough scheme looked to be coming to an end in October, just prior to the extension, 314,000 people were made redundant.

“At that point there were 2.4 million furloughed people in the UK, meaning 13.08 percent of furloughed workers were made redundant as the deadline loomed.

“Of course, the scheme was extended as the redundancies began, so we’ll never know the true scale of redundancies that would have otherwise happened.

“The real concern is that we now have 4.7 million people furloughed in the UK, and even a similar level of redundancies would result in another 614,760 people being made redundant in the UK.

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“Of course, the figures in November may well have ended up being worse had the scheme not been extended, which means that sadly, the figure of 614,760 predicted for September may well be far lower that the reality.”

Peter Nicholson, senior associate and solicitor specialising in employment law at Nelsons, said: “There are very few who would argue that the furlough scheme has not saved a significant number of jobs during the coronavirus pandemic. However, the big question now is how many jobs will be saved when it comes to an end in September this year.

“According to the latest government statistics, published on 25 February 2021, around 4.7 million jobs were furloughed as of 31 January this year, with an estimated 28 percent of these being ‘partial’ or ‘flexi furlough’ – where the employee is working part time or limited hours.

“The Office for Budget Responsibility (OBR) forecasts that the unemployment rate will peak at 6.5% in the fourth quarter of 2021, when the furlough scheme closes.

“However, that is an improvement on the previously forecast peak of 7.5 percent that was released in November last year.

“Realistically, while the furlough scheme has saved a considerable number of jobs so far, I expect there will be a significant number of job losses when it closes in September. It’s difficult give a definite figure as to how many redundancies there will be, as this depends on how the economy reacts as restrictions are lifted.”

The extension of the furlough scheme has been widely praised by the public and by businesses and business leaders to stop a sharp rise in unemployment.

Lee Murphy, managing director at The Accountancy Partnership said: “The decision to extend furlough to the end of September will no doubt be a welcome relief for businesses with employees.

“An abrupt end to the Coronavirus Job Retention Scheme (CJRS) could have resulted in thousands of lost jobs, so it is great to see this recognised in the Budget with a continuation of the support which has protected more than 11 million jobs so far.

“The furlough extension allows businesses to forward plan how they manage their employees for the remainder of the restrictions and beyond, without being forced into difficult redundancy decisions.

“With five months between now and August, businesses have adequate time to consider cash flow and, if all goes to plan with the gradual reopening, many businesses will be trading by then to support the businesses contributions to furloughed staff.

“It may be that even with the support available, there are still difficult decisions to make about prioritising the retention of those highly skilled workers who will most benefit the recovery of the business.

“Extending the CJRS to the end of September, beyond the planned end of restrictions in June, will give businesses the time and economic support they need to get back on their feet while the economy reopens, as this will not happen overnight.

“It is reassuring that the government is offering this support as it could be critical to many businesses’ viability during the reopening.”

Some however, have been less receptive to the support packages provided by the Chancellor.

Martin Taylor, Co-Founder Deputy CEO of Content Guru told Express.co.uk: “Keeping the job retention scheme running is risking the UK becoming a zombie economy of companies that are not viable but continue to exist on life support.

“Furlough is expensive. Some businesses are not viable but are keeping staff on for the time being as a ‘service’ to them and the country.

“However, it means that these people are not re-introduced to the job market where there are real shortages.

“What’s needed is retraining and reskilling.”

By ALISS HIGHAM

Source: Express

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Risks to UK Economy Remain Tilted to the Downside

Bank of England Governor Andrew Bailey said risks to the UK economy remain tilted to the downside, a remark that may rein in expectations that policy makers may soon shift toward containing inflation.

Bailey reiterated the bank’s guidance that it doesn’t intend to tighten monetary policy until there’s clear evidence the UK economy is absorbing excess capacity, and he noted that unemployment is likely to rise and remain higher a year from now. For those reasons, risks are “on balance distributed on the downside, though less so as time goes by.”

“There is a growing sense of economic optimism in markets and in consumer and business measures,” Bailey said in the text of a speech to the Resolution Foundation on Monday. “A note of realism though. Our latest forecast painted a picture of an economy that starts at a lower level of activity.”

The speech follows a sharp rise in U.K. interest rates in financial markets over the past month as Prime Minister Boris Johnson’s campaign to rapidly vaccinate the population from the coronavirus took hold. With the government working to loosen a nationwide lockdown, investors are starting to anticipate when the central bank might shift from supporting the recovery to controlling its strength.

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Bailey noted inflation remains below the bank’s 2% target and that before any more “there is a burden of proof we will need on the sustainability of the recovery.”

While the U.K. labor market has adjusted relatively quickly to economic shocks previously, the rise in unemployment was likely to be higher in a year partly because the worst-hit sectors are dominated by younger and lower-skilled workers who may find it harder to find new jobs, he said.

The furlough program, which pays 80% of wages to people whose workplace has closed due to the virus, “will help to preserve viable employment going forwards, and skills specific to particular jobs or companies, which is a good thing,” Bailey said, after Chancellor of the Exchequer Rishi Sunak extended the program until September in his budget last week.

“My expectation would be that this is likely to reduce the peak level of unemployment over the coming months,” Bailey said. “However, some rise in unemployment as the scheme tapers will be hard to avoid.”

By Lizzy Burden and Andrew Atkinson

Source: Bloomberg

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