Skip to content

Bank of England More Optimistic Over Economy But Fears Higher Unemployment

The latest data to be released by the Bank of England (BoE) suggests that the upcoming recession won’t be as harsh as previously predicted. However, they also pointed out that unemployment could double by the time 2020 ends.

The Full Details of the Economy Prediction

Britain’s economy is now likely to suffer a 9.5% drop in 2020. This is an improvement on the 14% decline that had been predicted earlier.

They think that the UK’s GDP will have shrunk by 20% in the second quarter of 2020. Yet, the increase in consumer spending and other recent indicators make the bank’s analysts believe that the economic recovery will be better than they had thought it would be.

The numbers for household consumption in the month of July showed that it was less than 10% under the normal levels seen before the lockdown started. There are also signs that the country’s housing market is getting back to normal.

They mention that business investment is probably going to recover more slowly than consumer spending. At the same time, the Bank decided to stick with the interest rate of 0.1% and they haven’t made any changes to the existing £745 billion programme to stimulate the economy.

The Unemployment Numbers

Less positive is their news that unemployment is set to almost double by the end of the year. The BoE predict that the jobless rate will reach 7.5%, meaning that about two and a half million people would be out of work. This would be the highest unemployment figures in seven years.

The winding down of the furlough scheme complicates matters further. Many of the 9.6 million workers who were on this government scheme are now back at work, but it is believed that a significant amount of others will lose their job when it ends.

Hiring is also expected to remain low-key. As uncertainty remains across the country, firms will be reluctant to take on new workers this year, with many having to concentrate on matters such as commercial debt collection to get through the crisis.

Some people are pushing for the furlough scheme to be expanded beyond its end date of October 31. This is due to the fact that certain sectors are said to still need some extra support before they can fully recover from the recent economic problems.

In a separate report, data firm Markit pointed out that 34% of companies in the construction industry are currently reducing worker numbers. Most positively, the building sector PMI grew from 55.3 in June to 58.1 in July.

A Look Ahead to 2021

As for 2021, the BoE’s Monetary Policy Committee thinks that the UK economy will grow by 9%. This would mean that it gets back to pre-Covid levels very quickly. Unemployment numbers should start to drop from the start of 2021.

They go on to suggest that 2022 will see a 3.5% increase in the GDP. This is more optimistic than many other current predictions, as other analysts think that the economy will take longer to recover.