The Chancellor’s new coronavirus support plan will help spare Britain’s economy from a devastating autumn cliff-edge but will not be enough to halt a steep hike in unemployment, experts have warned.
Economists said Rishi Sunak’s wage subsidy scheme will head off some of the much-feared tsunami of unemployment that was on the cards if the furlough scheme ended without replacement on October 31.
This should in turn avoid the hit to growth from soaring unemployment, which had threatened to choke off the UK’s fragile economic recovery since lockdown.
And there are fears the new worker support programme will not be enough to save jobs in many hard-hit sectors, while employers will also need to stump up more cash to top up staff wages.
The Institute for Fiscal Studies (IFS) think tank said the new Job Support Scheme was “significantly less generous” than the furlough system it replaces.
The IFS suggested that the end of the furlough scheme will translate into “sharply rising unemployment” as jobs which relied on the state funding will cease to exist.
Paul Johnson, IFS director, said: “With employers now having to pay at least 55% of the normal wages of their employees, it is clear that many jobs will be lost over the coming months.”
Martin Beck, at Oxford Economics, said while it will help ensure only viable jobs are protected, “even allowing for the tax advantages via lower NICs payments to employers of part-time versus full-time workers, firms may still see a strong case for reducing headcounts rather than putting their workers on short-time”.
Philip Shaw, at Investec Economics, believes the six-month wage subsidy scheme will “smooth out” the cliff-edge that faced the economy after furlough and act as a “bridge to a period when the economic conditions will be less uncertain and maybe when the world will be closer to a vaccine”.
The new plan should also help brighten the UK growth outlook a little for the next six months, though it will not prevent a sharp slowdown in the recovery over the final three months of 2020, he cautioned.
Investec is pencilling in an 18.2% bounce-back in gross domestic product (GDP) for the third quarter as the UK emerges from its lockdown-induced recession.
Its predictions before the latest measures see growth slowing markedly to around 3.3% in the fourth quarter.
But James Smith, economist at ING, warned the Chancellor’s measures will not be enough to offset the impact of Covid-19 restrictions on the economy.
He predicts a contraction of 0.5% in October from the latest restrictions and said the hit would be far more severe if even tighter restrictions come into force to halt the second wave.
If the Government introduced a nationwide mini-lockdown for two weeks next month, the economy could plunge by up to 7% to 8% month-on-month in October, which would “almost certainly” drag fourth-quarter GDP below zero, according to ING.
Despite the latest measures from the Chancellor, ING said further action by the Bank of England is still likely to be needed before the end of the year, with another dose of quantitative easing most probable.