Britons face “a real-life horror show” on October 31, analysts warned on Thursday, as key Covid-19 support measures, such as the furlough scheme, ends just when the country faces the prospect of a second lockdown.
UK finance minister Rishi Sunak’s original furlough programme will be replaced by a less-generous Job Support Scheme on November 1 at the same time that mortgage and loan holidays come to an end, along with interest-free overdrafts.
Meanwhile, with coronavirus cases escalating and unemployment expected to soar, economists are now predicting more Bank of England stimulus next week.
“It’s always Halloween at the end of October but this year feels like a real-life horror show for the personal finances of many people around the country, as official support schemes wind up or become less generous and as lockdown measures intensify in hotspots around the country,” said Becky O’Connor, head of pensions and savings at interactive investor.
“Ongoing further tier lockdown measures in the coming weeks will put the income of thousands of affected workers in peril and the new support offered in the winter plan might not prevent the nightmare facing some workers.”
Mr Sunak’s furlough programme – the Job Retention Scheme that paid up to 80 per cent of wages up to a maximum of £2,500 a month for those who could not work – ends on Saturday.
It will be replaced on November 1 by the Job Support Scheme (JSS), under which up to 62 per cent of an employee’s wages will be paid throughout the time they are away from their job, though they must work at least one day a week.
While Mr Sunak unveiled a significant increase in UK government support last week, including more wage subsidies and grants for businesses, the outlook for employment is not particularly rosy.
The unemployment rate may peak at closer to 8 per cent at the end of the year, Capital Economics said on Wednesday, up from the 4.5 per cent it hit in August.
“Output in August was still over 9 per cent below where it started. It will likely be 5-10 per cent down even by next spring. Surveys suggest firms expect persistently weak output. So we expect considerable employment cuts still, albeit smaller than they would have been without JSS. We need to keep Brexit in mind here, firms face Covid uncertainty and a likely long-term negative Brexit shock too (even with a deal),” said Robert Wood, UK economist at BofA Euro Economics.
About a fifth of young people who were furloughed have now lost their jobs, according to a Wednesday survey by YouGov for the Resolution Foundation. A similar percentage of Black, Asian and minority ethnic workers has also been cut. Only a third of the young who were let go have been able to find new work, the think tank said Wednesday.
Of all workers furloughed, about half have now returned to their jobs full time, while a third remain partially furloughed and one in 10 are out of work altogether, Resolution reported. The findings indicate that the jobless rate reached 7 per cent in September, and as much as 20 per cent among 18-24 year olds, meaning Britain is facing its highest youth unemployment in four decades.
Meanwhile, British employers planned making redundancies at close to a record level in September, according to government data released after a Freedom of Information request, with 1,734 employers notifying the government of plans to cut 20 or more posts – close to peak levels seen in June and July.
“The true nature of Britain’s jobs crisis is starting to reveal itself,” said Kathleen Henehan, a researcher at Resolution. “Worryingly, fewer than half of those who have lost their jobs during the pandemic have been able to find work since.”
Capital Economics said it sticks by its June forecast that the Bank of England’s (BoE) Monetary Policy Committee would expand quantitative easing (QE) by £100 billion ($130.1bn) at its meeting on November 5, while Swiss bank UBS Group became the latest lender to say it expected more stimulus next week amid growing signs of weakness in the UK jobs market.
“Of course it is questionable what the Bank can actually do to support the economy in the near term,” said Ruth Gregory, UK economist at Capital Economics. “It cannot hope to prevent a renewed downturn resulting from a ramping up in the Covid-19 restrictions. But further monetary stimulus can help to keep firms afloat and limit job losses, thereby allowing the economy to be in a better place once the virus has been brought under control.”
Ms Gregory also expects the BoE to expand QE by a further £150bn by the end of 2021. While the bank maintained interest rates at 0.1 per cent in its September policy meeting and maintained its previous £300bn expansion, it highlighted the downside risks to come.
Ms Gregory said that since then, those risks have materialised in four main ways, firstly with gross domestic product (GDP) being weaker in the third quarter than the BoE expected.
Secondly, the BoE’s August projections were based on the assumption that Covid-19’s effect on the economy would “dissipate over the forecast period”. However, the second wave of the virus and direct effects of containment measures will force the institution to revise is fourth quarter GDP outlook.
“Third, the indirect effect of households and firms becoming more reticent to spend due to the second wave of the virus may also keep GDP and inflation lower for longer and unemployment higher,” said Ms Gregory.
“Fourth, if there is a Brexit deal, it looks like it will be a looser arrangement than the Bank assumed. The Bank may now assume that a slim trade deal is agreed instead, which would put further downward pressure on its GDP forecasts.”
Business groups have said Mr Sunak must do more to protect jobs in the run-up to Christmas.
“As more local areas face the threat of being placed in higher tiers, meaning more and more households face tighter controls on their economic activity, there will be a direct impact on joblessness,” Josie Dent at the Centre of Economics and Business Research said earlier this month.
"The pandemic is having serious consequences for regional labour market differences, and a further divergence in economic performance across areas of Britain is likely in the months ahead, as businesses in some regions can operate somewhat normally, while others are stifled.”
Interactive investor said Britons must now arm themselves with a plan for the worst-case scenario of losing their job.
“With hopes of an end of the Covid-19 economic disruption by Christmas dashed, it is important that people continue to pay extra attention to their financial well-being,” said Myron Jobson, personal finance at campaigner interactive investor.
“Those struggling financially needn’t suffer in silence. The Financial Conduct Authority has recently announced a package of support for people struggling with repayments to ensure help is available after October 31.”