Bailey backs furlough 'rethink'
The job furlough scheme needs a "rethink" as ministers prepare to curb the spread of Covid-19 with new restrictions, Bank of England Governor Andrew Bailey said on Tuesday.
Chancellor Rishi Sunak faces a difficult decision over the future of the furlough scheme, which Mr Bailey called “extremely successful” but is due to finish at the end of October.
An estimated 3m workers are still on furlough but the Governor said that higher use of the scheme in sectors such as hospitality, retail and culture most affected by social distancing meant it was sensible to “stop and rethink”.
He told a British Chambers of Commerce webinar: “We are living in a fast-evolving world, certainly this week, so it would be completely inappropriate for me to tie the Chancellor’s hands. It is a very difficult situation we are in at the moment.
“What I would just reiterate is … the reason I said I think it was sensible not to continue the current scheme was precisely the point that we’ve moved from a world of generalised employment protection to rather more specifically focused areas.
“I think it is therefore sensible to stop and rethink the approach going forward, without any commitment to what that might be.”
Mr Bailey also struck a downbeat tone on economic prospects, warning that the "hard yards are ahead of us" as economically damaging curfews on bars and restaurants loom as well as a return to recommended working from home.
He warned: “We’re very unfortunately seeing a much faster and larger return of Covid and that is obviously, extremely difficult news for our country. I want to say obviously, that that does reinforce the downside risks we have in our forecast.”
Unemployment was likely to be higher than the 4.1pc official figure, but called the UK's recovery a "mixed story" with the economy regaining about half of its 20.4pc slump between April and June.
Areas of strength such as retail and the housing market were underlined by HMRC figures showing a sharp 15.6pc jump in housing sales in August due to the stamp duty holiday, although they remain almost 17pc below a year earlier.
But JPMorgan has warned that fresh restrictions on suffering sectors like hospitality - such as a two-week shutdown - could knock 2pc off the economy.
Mr Bailey also played down the prospect of negative rates despite a statement from the Monetary Policy Committee that the Bank would begin talks with the Prudential Regulation Authority over the “operational considerations” of the controversial policy last week.
“It would be a tremendous error, a cardinal sin in my view, if we stated we have a tool in the box, which in practice we didn't actually think we operationally could be used, because a lot of that is down to IT systems," he said.
"You know, can you actually put a negative number into an IT system in a bank? So it's no surprise that we're going to do this work … it doesn't imply anything about the possibility of us using negative instruments at the moment.”
