Issue of the week: Lockdown 2.0
The Treasury and the Bank of England are scrambling to prop up businesses
“For many firms, national lockdown marks the start of a bleak midwinter,” tweeted Carolyn Fairbairn, the outgoing CBI Director-General, last week, after the Government announced a renewed month-long closure. She’s right about that, said The Times. The new restrictions deal a body blow to already fading hopes of a robust UK recovery from the pandemic. Economists, rushing to revise their forecasts, warned the country to brace itself. Oxford Economics projected that UK GDP would fall by 10% monthon-month in November; the National Institute of Economic and Social Research said the drop could be as much as 12%. Whatever the exact figure, there’s a “bumpy ride” ahead.
The good news, said Delphine Strauss and Chris Giles in the FT, is that the “economic pain” is likely to be less severe than during the first lockdown – when UK GDP plunged 25%. As IMF chief Kristalina Georgieva points out, we’re unlikely to see such a “dramatic drop” in output again because “most of the negative impact on contact-dependent industries has already happened” – and other sectors have adapted to operating virtually. Schools are still open, businesses are better prepared and there is a clearer exit strategy. The new restrictions are also likely to spur the Bank of England to launch a new round of quantitative easing: analysts
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but will it be enough?
predict it could add a further £50bn£150bn to its asset purchases. Economists reckon this will “do very little to boost growth... because there is little scope to reduce borrowing costs further”. But it could “help keep firms afloat and limit job losses”.
The timing could not have been worse for Rishi Sunak, who had just finalised a job support scheme to replace furlough, said Jill Treanor in The Sunday Times. Dramatically extending the existing scheme must have felt like “Groundhog Day”. The Chancellor had little choice but to U-turn, given the “cacophony of warnings” about an explosion in unemployment. “But questions are already being asked about what will happen when this extension of furloughing ends in December.” The depressing likelihood is that the main casualties of “Lockdown 2” will be the same as in “Lockdown 1”, said Larry Elliott in The Guardian: “young, low-paid workers employed by consumer-facing services”. The TUC has asked Sunak to ensure that “nobody ends up earning less than the minimum wage”. But given the Treasury’s “reluctance to target particular sectors, it’s highly improbable the Chancellor will go down this road”. Labour is urging Sunak to devise a “six-month plan” to get the country through the crisis, noted BBC Business. There have been worse ideas.