The UK’s unemployment rate is expected to hit 7.5% after a host of government support schemes are turned off, the Bank of England has predicted.
In its latest Monetary Policy Report, the central bank said joblessness had been “very significantly mitigated“ by programmes including the government’s furlough scheme, which sees the state pay the wages of millions of employees.
But it expects unemployment to climb sharply from its current 3.9% rate by the end of the year.
Chancellor Rishi Sunak has made clear that the furlough scheme, which is now being pared back, will come to an end in October.
The Bank of England is meanwhile forecasting that the UK economy will be a fifth smaller as a result of the crisis – although it says spending has “recovered significantly” since its lowest point during the lockdown in April.
In its latest report, the Bank’s Monetary Policy Committee said: “Employment appears to have fallen since the Covid-19 outbreak, although this has been very significantly mitigated by the extensive take-up of support from temporary government schemes.
“Surveys indicate that many workers have already returned to work from furlough, but considerable uncertainty remains about the prospects for employment after those support schemes unwind.
“In the near term, the unemployment rate is projected to rise materially, to around 7.5pc by the end of the year, consistent with a material degree of spare capacity.”
On the wider economy, the Bank said UK GDP “is expected to have been over 20pc lower in 2020 Q2 than in 2019 Q4”.
“But higher-frequency indicators imply that spending has recovered significantly since the trough in activity in April,” it adds.
“Payments data suggest that household consumption in July was less than 10pc below its level at the start of the year.”
The MPC said UK GDP is not expected to exceed its end-of-2019 level until the end of next year, “in part reflecting persistently weaker supply capacity”.
And it warned: “The outlook for the UK and global economies remains unusually uncertain.
“It will depend critically on the evolution of the pandemic, measures taken to protect public health, and how governments, households and businesses respond to these factors.”
The MPC said the UK’s housing market “appears to have returned to close to normal levels“, despite “signs of a tightening in credit supply for some households”.
But business investment is “likely to have fallen markedly” in the second quarter of this year, while the central bank said “investment intentions remain very weak”.
Responding to the Bank of England’s report, Frances O’Grady, general secretary of the TUC trade union group, said: “The threat of mass unemployment has not gone away. Ministers must act now to save jobs.
“That means extending the job retention scheme for businesses in hard hit sectors like retail, manufacturing, and aviation. Many companies have a viable future but need longer-term support to get back on their feet.
“And the government must invest now to create the jobs we need for the future in green industries, social care and across the public sector.
“The more people we can keep and get into work the faster our economy will recover.”
Matt Honeycombe-Foster is acting editor of CSW's sister title PoliticsHome, where a version of this article first appeared.