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The Bank of England Keep Interest Rates Steady and the Furlough Scheme Is Extended Again

The return to lockdown restrictions in the UK has led to fresh predictions of the amount of economic damage being made. What do the Bank of England (BoE) experts think about it and how is the furlough scheme going to be extended to help people cope?

What Does the BoE Think?

The latest BoE update confirmed that they will be keeping interest rates at 0.1% while increasing their quantitative easing program by £150 million, which is slightly more than was expected. They called the economic outlook “highly uncertain” and said that it depends upon the “evolution of the pandemic” as well as the measures taken to stop the spread.

In terms of looking ahead, the BoE changed their forecasts, reflecting the economic hit that the country will take from going into a second lockdown. They now think that the British economy will contract by 11% throughout this year, a bigger fall than the 5.4% that they had predicted earlier in 2020.

However, the positive news is that they believe that 2021 will see the economy bounce back more strongly than they had earlier expected it to. In August of this year, their prediction was for a 6.2% expansion by the end of 2021, but this has now been revised upwards to 11%.

Immediate reaction to the central bank’s report included a rally on the pound which saw it reverse recent losses against the dollar and the euro. There was no mention in their report of negative interest rates, but analysts believe that they will do whatever is needed to keep inflation on track.

The New Furlough Rules

The chancellor, Rishi Sunak, also reacted swiftly to the BoE’s figures. He pointed out that the nation’s recovery has slowed down and that there is now a larger degree of uncertainty around businesses, many of whom are currently relying on international commercial debt recovery to meet their expenses.

Sunak has now extended the long-running furlough scheme through to March 2021. This means that employees will continue to receive 80% of their normal salaries, with their employers only needing to pay the national insurance and pension contributions for those staff who are on the scheme.

As part of his new support package, the chancellor also confirmed that self-employed workers will be paid out at 80% of their average profits, for the period from November up to January, which is an increase on the previous 40% figure.

One other important point to bear in mind is that the £1,000 bonus for companies that retain staff will no longer be offered. However, the government is still expected to spend more billions of pounds on these support schemes.

The chancellor called the level of support being offered “aggressive”. He also pointed out that they will be giving a further £2 billion to Scotland, Wales and Northern Ireland, to ensure that all parts of the country will be able to cope with the recent introduction of tougher restrictions.