Bank of England Governor backs end of furlough scheme

The Governor of the Bank of England has backed the government's decision to end its furlough scheme in October.

The Bank calculates the Job Retention Scheme has supported 6 million people. It ends in October and the Governor of the Bank thinks it’s right to phase it out.

The Bank also predicted the economic slump caused by Covid-19 will be less severe than expected, but warned the recovery will also take longer.

More than nine million jobs have been furloughed under the government's job retention scheme, but the Bank expects most people to go back to work as the economy recovers.

Last week, the National Institute for Economic and Social Reform (NIESR) said it was a “mistake” for the government to withdraw furlough support in October.

It argued that extending the wage subsidy to sectors still in distress would reduce the number of redundancies ahead and, as a result, would probably pay for itself.

The Bank said a faster easing of lockdown measures and a "more rapid" pick-up in consumer spending had helped the economy rebound faster than it had assumed in May.

Its latest Monetary Policy Report showed spending on clothing and household goods were back to pre-Covid levels.

However, the Bank warned of a "material" rise in unemployment this year as it held interest rates at 0.1%.

Mr Bailey said recent data suggested the recovery in consumer spending was gaining traction, while spending on food and energy bills remained above pre-Covid levels.

He said: "We have had a strong recovery in the last few months. The pace puts the economy ahead of where we thought it would be in May."

The Bank expects the UK economy to shrink by 9.5% this year.

The Bank said the UK still faced its sharpest recession on record, with the outlook for growth now "unusually uncertain".

The Bank expects the UK economy to grow by 9% in 2021, and 3.5% in 2022, with the economy forecast to get back to its pre-Covid size at the end of 2021.

Meanwhile, a fall in energy prices and the temporary VAT cut for hotels, theme parks and other hospitality businesses means the cost of living is expected to barely rise this year.

The Bank expects inflation, as measured by the consumer prices index (CPI), to fall close to zero by the end of 2020, before gradually rising back to its target of 2%.