Rishi Sunak extends furlough scheme to September
UK Prime Minister, Boris Johnson provided hope for the nation in February after revealing his roadmap out of UK lockdown, which was followed by further support from Chancellor of the Exchequer, Rishi Sunak. During the spring 2021 budget, it was confirmed that the furlough scheme would be extended until the end of September.
The furlough scheme, which was introduced last April during the beginning of the coronavirus pandemic and first national lockdown, has experienced multiple extensions over the past year. The last extension was due to end in April and it was initially thought that Mr Sunak would then amend this to June. However, the chancellor confirmed that the extension to September would help to provide further support to struggling UK businesses that need extra support as they navigate out of the third national lockdown.
It was feared that when the scheme was due to end in April, that it would encourage a mass of redundancies. Sectors such as hospitality, travel, retail and leisure have been particularly hard hit and the extra financial support would allow some breathing space. However, with non-essential businesses due to reopen in April, it’s hoped that the UK economy will experience a strong recovery, lessening the financial impact once the scheme does wind up.
Whilst it’s thought that the UK’s continued rapid covid vaccination programme could potentially allow restrictions to be lifted early, Boris Johnson stated “for the duration of the Coronavirus pandemic the UK Government will continue to do whatever it takes to protect jobs and livelihoods.”
Chancellor Rishi Sunak has previously stated that the UK economy had suffered “lasting” damage at the hands of the coronavirus and that it will not return to pre-crisis levels until the end of 2022. However, following Boris Johnson’s roadmap announcement, it’s thought that the UK economy could return to pre-pandemic levels by Q1 2022.
What else will be covered in the Spring 2021 Budget?
In addition to providing job security, another priority for the Chancellor was repaying UK debt brought about by COVID-19. Recent figures from the Office of National Statistics (ONS) indicate that the UK government has borrowed GBP 270.8 billion, which is GBP 212.7 billion more than the same time last year.
This level of borrowing has pushed total UK debt up to GBP 2.13 trillion. Whilst this level of debt in the UK has not been experienced since the 1960’s, Mr Sunak stated that spending to provide job protection was financially responsible.
The London School of Economics released a report last month, which discovered that one in seven companies, with a total of 2.5 million employees, could go out of business by the spring without further financial assistance.
Tax rises were also discussed during the Spring budget. Whilst the Conservative party had previously stated that they would not raise income tax, VAT or national insurance, this was prior to COVID-19. In order to support the various coronavirus support schemes, the chancellor hiked up corporate tax for large companies from 19% to 23% until 2023, which will create an additional GBP 12 billion per year.
UK unemployment reaches worst level in five years
Recent figures have revealed that unemployment in the UK has reached its worst level in five years, with those under 25 being the most impacted. Data has shown that UK unemployment rose to 5.1% during Q4 of 2020, with payroll figures down 726,000 pre-COVID-19.
Whilst unemployment remains a concern, there has been a mild improvement this year with the ONS stating that payroll figures rose by 83,000 in January compared to the previous month. The rise in figures is thought to be as a result of companies bringing staff off furlough in the new year.
There are currently around six million workers being supported by the furlough scheme and even though the scheme will be extended to September, there is still a concern as to what will happen once this ends.
The Bank of England (BoE) had forecast that unemployment would peak to around 7.8% this year as a result of extended lockdown restrictions, though they have since stated that this will not be as severe. Whilst the jobless forecast remains bleak, the improvement in the UK economy anticipated for the beginning of 2022 should make way for further employment opportunities.
Despite the dreary outlook for UK unemployment in the near term, this does not appear to be affecting the outlook for the British pound (GBP) which remains very much focussed on coronavirus vaccine progressions.
The roadmap from Boris Johnson has supported the British pound (GBP) further as non-essential UK businesses are given a return date and hopes return for the likes of the travel and hospitality industry. It has also been confirmed that over 28 million people have received the first dose of the coronavirus vaccine, with inoculation figures continuing to rise daily and offering greater protection against coronavirus.
Whilst the UK’s vaccine progressions had underpinned the British pound (GBP) considerably, support is now fading over fears of supply delays from India and the EU threatening to stop vaccine exports.
The EU will meet today to discuss the future of vaccine exports. Decisions that will cause delays in the UK’s vaccination campaign will add further pressure to the British pound (GBP).