Bank trims fore­cast on job losses as it eyes re­cov­ery

Gover­nor rows back from neg­a­tive in­ter­est rates but warns that a sec­ond wave could snub out re­vival

The Daily Telegraph - Business - - Front Page - By Rus­sell Lynch and Tim Wal­lace

FEWER jobs will be de­stroyed by the coro­n­avirus cri­sis than first feared – but Bri­tain’s frag­ile re­cov­ery could be de­railed by a sec­ond wave of in­fec­tions, the Bank of Eng­land has said.

Un­em­ploy­ment is pre­dicted to hit 7.5pc, be­low the Bank’s 9pc fore­cast in May and also be­low its 8.5pc peak in the aftermath of the fi­nan­cial cri­sis.

The coun­try suf­fered a shal­lower lock­down re­ces­sion than ini­tially thought and re­cov­ery is now un­der way af­ter busi­nesses re­opened and shop­pers be­gan to spend again, although the Bank ex­pects the econ­omy to take longer than pre­vi­ously hoped to re­gain its pre-Covid peak.

The upbeat pre­dic­tions helped push ster­ling to $1.32, its high­est level since be­fore the pan­demic struck.

Although the job­less rate would im­ply an ex­tra 1.2m peo­ple out of work, the peak would be mod­est by his­tor­i­cal stan­dards and well be­low the record of 12pc hit in the Eight­ies.

How­ever, econ­o­mists said the lat­est fore­casts could be over-op­ti­mistic as the tax­payer-funded fur­lough scheme pro­tect­ing as many 9.6m jobs is due to be wound up in Oc­to­ber. It is feared this could trig­ger mas­sive lay-offs as com­pa­nies scram­ble to save money.

The Bank it­self warned that hopes of a strong re­bound could yet be crushed by fur­ther un­cer­tainty.

An­drew Bai­ley, Gover­nor, said: “There are some very hard yards to come, and frankly we are ready to act should that be needed.”

The Bank’s Mon­e­tary Pol­icy Com­mit­tee voted to hold in­ter­est rates at 0.1pc and held fire on fur­ther ex­pan- sion of its £745bn as­set-buy­ing scheme.

The Bank now ex­pects the econ­omy to shrink by 9.5pc this year, shal­lower than the 14pc slump fore­cast in May, partly due to a £30bn stim­u­lus pack­age un­veiled by Rishi Su­nak, the Chan­cel­lor, in July to aid the econ­omy.

GDP will still be 5pc lower than its pre-Covid lev­els by the end of this year and will not fully re­cover un­til the end of next year, the Bank said, around six months later than first fore­cast.

Most an­a­lysts ex­pect a more pro­tracted re­cov­ery with GDP still 4pc be­low peak at the end of 2021.

Ge­orge Buck­ley, an econ­o­mist at No­mura, said: “The Bank is op­ti­mistic about where un­em­ploy­ment set­tles.”

The Bank has been look­ing at the case for open­ing the door to neg­a­tive rates, where it charges banks to de­posit cash rather than pay­ing out in­ter­est.

How­ever, its Mon­e­tary Pol­icy Re­port listed a range of po­ten­tial prob­lems with the pol­icy and said it could end up hin­der­ing the econ­omy in­stead of en­cour­ag­ing it.

The re­port said: “Neg­a­tive pol­icy rates at this time could be less ef­fec­tive as a tool to stim­u­late the econ­omy.”

Fi­nan­cial mar­kets trimmed bets that in­ter­est rates will fall be­low zero for the first time next year.

Thread­nee­dle Street’s Fi­nan­cial Pol­icy Com­mit­tee said banks’ losses on loans are likely to be lower than first feared, in­di­cat­ing they can keep lend­ing to sup­port the econ­omy.

It ex­pects credit losses be­low the £80bn pre­dicted in May and added that bal­ance sheets are more than suf- fi­cient to ab­sorb the losses.

Mean­while, last night Mr Bai­ley said he sup­ported the Chan­cel­lor’s de­ci­sion to end the fur­lough scheme in Oc­to­ber.

“It’s been a very suc­cess­ful scheme, but he’s right to say we have to look for­ward,” he told the BBC. “I don’t think we should be lock­ing the econ­omy down in a state that it pre-ex­isted in.”

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