LONDON – On the first day of a new month-long national shutdown in the UK, it is clear how the rising coronavirus pandemic has turned Britain’s economic recovery back into a reversal. On Thursday, the government and central bank announced the extension of the emergency stimulus measures they had put in place in the spring.
The Bank of England lowered its economic growth forecast, saying that this year’s recession will deepen and the recovery next year will be slower than previous forecast.
Hours later, Exchequer’s prime minister, Rishi Sunak, canceled a plan to replace the work program, in which the government pays 80% of the salary for the hours the employees cannot work. It will end on October 31st, but it has been extended for another month to coincide with the new lockout. On Thursday, Mr. Sunak said it will be available until the end of March.
“I know home viewers will be disappointed by the changes the government has made in the past few weeks,” Mr. Sunak told lawmakers at Congress the same day that bars, restaurants and shops. Non-essential item closed for the customer for the second time. “I had to quickly adjust my economic plans as the virus spread grew.”
The UK economy went against the path that the prime minister had been preparing for when the virus cases skyrocketed. In July, Mr. Sunak started reverting to the stimulus measures when the economy reopened. Then, six weeks ago, he outlined a “winter economic plan” designed to support the next phase of the recovery. Employers will be forced to pay a larger share of their employees’ salaries to compensate for reduced hours, as a way to limit government support for what he calls ” possible work ”.
Since then, the average number of new infections per day has more than tripled to 22,000, and the government’s decision to adopt local lockdowns on virus hotspots has not been limited. spread fast enough. And so Mr. Sunak returned with a more generous job support program.
He also said on Thursday that companies could reassign people they recently laid off if they were on the payroll on September 23 and request planned salary support for them. increase.
Jagjit Chadha, director of the National Institute for Economic and Social Studies, said some uncertainty and uncertainty in the government’s response could be avoided.
“Nobody says we can fully see the future, but it’s pretty clear from the scientific analysis that we had in March that there will be the first wave and the second wave,” he said.
His organization has contested requiring the government to ensure income support whenever there is a lockout or increased cases of viruses seriously hampering the economy, rather than “arbitrary” policies. “Expires and is eventually renewed. This approach “is much more efficient than the summer stop sequence,” he says.
The UK economy is now expected to drop 2% in the fourth quarter from the previous quarter, the central bank said. And the economy won’t return to pre-pandemic scale until early 2022. Three months ago, the Bank of England predicted a 4% increase in Q4 and a rebound back to pre-pandemic levels by the end of the year. next year.
The unemployment rate is also expected to peak at 7.75% in 2021, up from 4.5% in August. This is only a slight increase from previous projections, because the central bank It is expected that 5.5 million people will join the training program this month, an increase of about three million people.
The expansion program is forecast to cost the UK government £ 6.2 billion ($ 8.1 billion) a month, according to the Resolution Foundation, a living standards research organization.
“Supporting businesses and workers through a tough winter is welcome, but it’s hard to conclude that the messy process of bringing economic policy back into full lockdown. Through a two-month, five-stage turnaround period is anything but profound optimization, ”said Torsten Bell, CEO of the Resolution Foundation.
Central banks voted unanimously to buy an additional £ 150 billion in government bonds, bringing the total number of bank shares to £ 875 billion. This sale will start in January and is expected to last until the end of next year. Officials have bought more than economists expected, and this is the third time the Bank of England has increased bond purchases by 2020. This program aims to help keep interest rates low, which will do make it easier to pay off government debt over time. Encourage lenders to invest in risky assets than government bonds.
Prime Minister Boris Johnson has said that the embargo will last until December 2, but there are expectations, even within his own cabinet, that after this date Britain will be severely limited. On Sunday, Michael Gove, senior Cabinet Secretary, admitted that the measures – requiring people to stay home unless they need to go to work, school or essential shopping – could take more than a month. .
“It is foolish to predict with certainty what will happen in a four-week period, when over the past two weeks its prevalence, infectivity and malignancy have been,” said Gove. increase.
In the spring, Britain shut down businesses and most of its economy later than some of its neighbors, and ultimately a longer shutdown and one of the worst recessions. of Europe in the second quarter. Some politicians and economists worry that Britain is repeating this mistake. Opposition lawmakers pushed the nation-wide lockdown shorter a few weeks ago but the government persisted with local restrictions.
But the situation in the European Union – Britain’s main trading partner – also worsened. Valdis Dombrovskis, executive vice president of the European Commission, said Thursday a second wave of the pandemic is “shattering our hopes for a quick recovery”. The Commission has released new economic forecasts for the bloc that show a weakening recovery. Meanwhile, the 750 billion euro ($ 883 billion) stimulus package is stuck in negotiations, and loans and grants are not refundable until next year.
The latest stimulus measures include the period when Britain will split from the European Union. Consistent with official government policy, the Bank of England assumed that there would be a free trade agreement between the UK and the bloc. But their forecasts suggest that trade disruptions will slow economic growth by one percentage point in the first quarter of 2021, as many businesses are yet to prepare for a new trade deal.