LONDON – The British government on Thursday extended its salary support program by another month through to the end of April as it tries to keep a lid on unemployment as coronavirus restrictions slam businesses.
The government confirmed it would carry on paying 80% of the salaries of those workers retained by firms rather than fired. It also extended its government-guaranteed COVID-19 business loan schemes for two months until the end of March.
“We know the premium businesses place on certainty, so it is right that we enable them to plan ahead regardless of the path the virus takes, which is why we’re providing certainty and clarity by extending this support," said Treasury chief Rishi Sunak.
The U.K., like others, has re-imposed onerous coronavirus restrictions following the resurgence of the virus. The government has expressed hope that by April the rollout of coronavirus vaccines will have changed the dynamics of the pandemic to allow some sort of normality to return to everyday life.
Because most of the U.K. is currently facing stringent restrictions that involve the closure of certain sectors, notably pubs and restaurants, millions of people are not able to work. Many other businesses, such as in arts and entertainment, have not opened since the pandemic took root in March.
The government launched in March the Job Retention Scheme and it has certainly helped - the U.K. recorded far smaller increases in unemployment than many other countries, such as the United States. Though the unemployment rate has risen to nearly 5% and is forecast to rise further, there were fears in the spring it would be double that.
The Treasury says the scheme has protected nearly 10 million jobs across the U.K. with more than one million businesses accessing loans to help them through the crisis. It's not been cheap — more than 45 billion pounds ($60 billion).
The Bank of England has also been providing unprecedented support to the British economy over the past few months. However, on Thursday it held fire, keeping its main interest rate at the record low of 0.1% while maintaining the monetary stimulus already in place.
It said the outlook remains “unusually uncertain” and “depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom.”
The bank’s forecasts are based on the assumption of a smooth adjustment to a new tariff-free trading relationship between the EU and the U.K. Were a deal not to emerge, tariffs and quotas would be imposed on many goods traded between the two sides, a development that most economists think would hurt the British economy relatively more.
Bank of England Governor Andrew Bailey recently warned that failing to reach a new trade deal would have a greater long-term impact on the British economy than the long-term impact of the coronavirus pandemic.
The British economy is expected to end this year around 12% smaller than it started as a result of the pandemic and the restrictions on business activity and public life. That would be its deepest recession in three centuries.
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