- The Chancellor’s decision to extend the furlough scheme and the self-employment grant to the end of March provides important support to the UK economy at the time of heightened uncertainty, says the EY ITEM Club
- The Chancellor’s announcement of the extended furlough scheme occurring on the same day as the Bank of England announcing a larger-than-expected stimulus for the economy gives the impression that the Treasury and the Bank of England are co-ordinating their actions
- Co-ordinated action is likely aimed at trying to maximize any boost to business and consumer confidence
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The Chancellor’s decision to extend the furlough scheme and the self-employment grant to the end of March provides important support to the UK economy at a time of heightened uncertainty.
“With England now in a national lockdown until 2 December, and with the possibility of continued restrictions beyond that, businesses are facing renewed uncertainties at a time when many of them have by no means fully recovered from the impact of the restrictions in place earlier in the year. This is particularly true for the hospitality sector but other sectors, such as non-essential retailers, are also being affected by the latest measures.
“There is also the risk that this second national lockdown prompts prolonged caution in the behaviour of consumers and businesses, further affecting the recovery.
“By providing extended support for jobs, the Chancellor is at least providing some degree of certainty for the next five months.
“However, despite the extension, many companies may have already enacted or decided upon redundancies. Other companies may have concluded that they will not need some of their workers further out. It is also notable that there will still be some costs for companies furloughing their workers, as they will need to pay pension contributions.
“Consequently, the latest move may not prevent a significant rise in job losses over the next few months, although it should limit the overall increase. The Chancellor has looked to try and combat this by indicating that workers made redundant after 23 September can be re-employed and put on the furlough scheme.
“Of course, there is still the risk that there could be appreciable job losses when the furlough scheme now ends in March, particularly if the economy is still being affected by some pandemic-related restrictions. The Chancellor has indicated that he will review the furlough scheme in January.
“It is notable that the Chancellor’s extension to the furlough scheme follows on from the Bank of England announcing a larger-than-expected £150 billion of additional asset purchases at the November Monetary Policy meeting.
“The timing of the announcements gives the impression that the Treasury and the Bank of England are co-ordinating their action to provide robust support for the economy.”