LONDON – First day of the new national month closure in England, it became clear how much they were reborn coronavirus the pandemic has reversed Britain’s economic recovery. The government and central bank announced on Thursday an extension of the emergency stimulus measures they introduced in the spring.
File Bank of England it lowered its forecasts for economic growth, saying the recession will be deeper this year and that the recovery next year will be slower than previously predicted.
Hours later, Chancellor of the Treasury, Rishi Sunak, scrapped it plans to replace the vacation programin which the government pays 80 percent of the wages for the hours that employees are not allowed to work. This was due to end on October 31, but was extended for a month to coincide with the new lockdown. On Thursday, Mr. Sunak said it would be so available until the end of March.
“I know people watching at home will be frustrated by the changes made by the government in the last few weeks,” Mr. Sunak told MPs on the same day. bars, restaurants and unnecessary shops close their doors to customers for the second time. “I had to make quick changes to our economic plans as the spread of the virus has accelerated.”
The British economy has deviated from the path the Chancellor was preparing for as the number of virus cases increased. In July, Sunak began withdrawing stimulus as the economy reopened. Then, six weeks ago, he outlined a “winter economic plan” to support the next phase of the recovery. Employers would be forced to pay the greater part of their workers’ wages to compensate for reduced working hours as a way of limiting government support to so-called ‘profitable jobs’.
Since then, the average daily number new infections more than tripled to 22,000and the government’s decision to impose local lockdowns on virus hotspots did not restrict the domain spread fast enough. Thus, Mr. Sunak returned to a more generous employment support program.
He also said on Thursday that companies can re-hire people they recently laid off if they were on the payroll on September 23, and apply for payroll support for them as part of the vacation plan.
Some of the uncertainties and twists in the government’s response could possibly have been avoided, said Jagjit Chadha, director of the National Institute of Economic and Social Research.
“Nobody says we can fully predict the future, but it was clear from the scientific analysis in March that there would be first and second waves,” he said.
His organization argued that the government would provide income support in the event of lockouts or spikes in viruses that severely hinder the economy, instead of “time dependent” policies that expire and eventually extend. This approach is “much more effective than the stop-stop-and-go sequence that has been going on since the summer,” he said.
The UK economy is now expected to contract 2 percent in the fourth quarter compared to the previous quarter, the central bank said. And the economy will only return to pre-pandemic size in early 2022. Three months ago, the Bank of England forecasted 4% growth in the fourth quarter and a return to pre-pandemic levels by the end of next year.
The unemployment rate is also expected to peak at 7.75 percent in 2021, up from 4.5 percent in August. This is only a slight increase over earlier forecasts as the central bank expects 5.5 million people on the vacation program this month, an increase of around 3 million people.
The extended program is expected to cost the British government £ 6.2bn ($ 8.1bn) a month, according to the analytical organization Resolution Foundation, which studies living standards.
“Support for businesses and employees during the harsh winter is welcome, but it’s hard to say that the sloppy process of returning economic policy to full lockdown via a two-month, five-step turnaround is anything but deeply suboptimal,” said Torsten Bell, CEO, Resolution Foundation.
Central bankers voted unanimously to buy £ 150 billion more in government bonds, bringing the bank’s total balance to £ 875bn. These purchases will start in January and will last until the end of next year. Officials made more purchases than economists had predicted, and this was the third time the Bank of England increased its bond purchases in 2020. The scheme aims to help keep interest rates low, which would make it easier to pay off government debt over time, while encouraging lenders to investing in riskier assets than government bonds.
Prime Minister Boris Johnson said this blockade would only last until December 2, but there are expectations, even in his own government, that after that date England will be subject to severe restrictions. On Sunday, Michael Gove, senior cabinet minister, admitted measures – which require people to stay home unless they need to go out for work, education, or essential purchases – may be extended beyond a month.
“It would be foolish to predict with absolute certainty what will happen in four weeks when his pace, contagion and malignancy will increase in the past two weeks,” said Gove.
In the spring, Britain shut down businesses and much of its economy later than some of its neighbors, and ended up with a longer lockdown and one of the biggest recessions in Europe in the second quarter. Some politicians and economists fear Britain is repeating this mistake. Opposition legislators demanded a shorter nationwide blockade a few weeks ago, but the government insisted instead on local restrictions.
But the situation in the European Union – Britain’s main trading partner – has also worsened. The second wave of the pandemic “is tearing our hopes of a quick recovery,” said Valdis Dombrovskis, executive vice-president of the European Commission on Thursday. The commission produced new economic forecasts for a block showing a weakening of recovery. Meanwhile, a landmark stimulus package of € 750 billion ($ 883 billion) is stuck in negotiations, and loans and subsidies will not be distributed until next year.
The latest stimulus measures cover a period in which the UK breaks away from the European Union. In line with the official government policy, the Bank of England assumes that there will be a free trade agreement between Great Britain and the bloc. However, his forecasts predict that the trade disruption will slash economic growth by one percentage point in the first quarter of 2021, as many companies are still not prepared for a new trade deal.