Unemployment to hit 7.5% but downturn not as bad as feared, says Bank of England
THE Bank of England today offered fresh hope for the economy as its latest predictions show the impact of the coronavirus crisis may not be as bad as had been feared.
It expects the economy to shrink by 9.5 per cent by the end of the year - a smaller decline than the 14 per cent that had been predicted.
It then expects GDP (gross domestic product), which is used to measure the economy, to grow by 9 per cent in 2021 and by 3.5 per cent in 2022.
Despite this more positive outlook, the near 10 per cent drop would be the biggest annual fall in 100 years, marking the biggest recession since the impact of the Spanish Flu and the end of WWI in 1918.
The worst case scenario would have been the largest fallout since the Great Frost of 1709.
But the report added that the economic outlook remains "unusually uncertain."
What are my redundancy rights?
BEFORE making you unemployed, your employer should still carry out a fair redundancy process.
You are entitled to be consulted on the redundancy lay-off first and to receive a statutory redundancy payment, as long as you've been working somewhere for at least two years.
How much you're entitled to depends on your age and length of service, although this is capped at 20 years. You'll get:
- Half a week’s pay for each full year you were under 22,
- One week’s pay for each full year you were 22 or older, but under 41,
- One and half week’s pay for each full year you were 41 or older.
Sadly, you won't be entitled to a payout if you've been working for your employer for fewer than two years.
There should be a period of collective consultation as well as time for individual ones if your employer wants to make 20 or more employees redundant within 90 days or each other.
You are also entitled to appeal the decision by claiming unfair dismissal within three months of being let go.
The Bank of England said: "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 latest GDP figures show the UK economy grew by 1.8 per cent in May as coronavirus lockdown restrictions were eased.
In spite of this, unemployment is expected to jump to 7.5 per cent - equal to 2.6million people - an increase of 1.3million job losses on March through to May 2020.
Unemployment has already risen by 649,000 workers since lockdown, according to the ONS, with the rate of people out of work at 3.9 per cent.
The UK's central bank predicts the number of Brits out of work will peak at at the end of 2020 before slowly declining from the start of next year.
It comes amid a jobs bloodbath this week, with major firms announcing thousands of employees are at risk of redundancy in the coming months.
On Monday, DW Sport went into administration putting 1,700 jobs at risk, and on Tuesday Pizza Express warned that 1,100 jobs could be scrapped as it plans to close 67 UK branches
On Wednesday, WH Smith warned that 1,500 jobs will be axed as part of a restructure, while M&Co said 380 employees will be let go as it closes 47 stores.
The bank says that so far mass unemployment has been avoided due to the "extensive take up" of support from temporary government schemes, such as furlough.
Last month, the Office for Budget Responsibility (OBR) predicted that unemployment could treble this year to 3million.
Latest figures show that 9.5million workers are on furlough, but as the schemes are wound down, the Bank of England believes unemployment will rocket.
Frances O'Grady of the TUC says that to avoid job losses, the government must extend the furlough scheme for worst hit sectors beyond October.
He said: "The more people we can keep and get into work the faster our economy will recover."
The central bank also today held interest rates at a historical low of 0.1 per cent after all nine of the Monetary Policy Committee (MPC) agreed they should remain at this level.
Rates have already been slashed twice since mid-March, from 0.75 per cent, as part of the Bank's measures to try and keep the economy afloat during the pandemic.
Lenders use the base rate to set their own charges for loans and savings.
What is the base rate?
SIMPLY put, it’s the country’s official borrowing rate, and is the rate the Bank of England lends to all the other banks in the UK.
It is incredibly important as it a guide for lenders on what rates it can offer – and therefore impacts mortgage rates, credit cards, loans and savings.
It was stuck at record low levels for a decade because of the state of the economy after the financial crash in 2008.
It was raised back to 0.5 per cent last November, the first of what many had hoped would be three hikes within three years.
The rate went up again in August 2018 to 0.75 per cent and has been held there ever since until the beginning of March when it was slashed to 0.5 per cent again.
The shock announcement at the end of March - where it dropped to 0.1 per cent - means it's now below a level not seen since before 2016.
Keeping the base rate low is bad news for savers because it means banks are unlikely to increase the interest they pay on already appallingly low savings accounts.
But on the flip side, keeping base rate low is good for borrowers who will continue to see low rates on loans, such as mortgages.
This typically benefits homeowners who are on variable rate or tracker deals that follow the performance of the base rate.
Those on fixed deals are locked in so won't see any rate change until the term ends.
But once their rate comes to an end they will be able to cash in on lower rates when they take out a new deal.
Some experts had predicted that the base rate could turn negative - this would see consumers pay banks to hold their savings if the rate dropped below zero.
Jeremy Thomson Cook, chief economist at finance firm warned that the economic recovery "is not going to be v-shaped" as many had hoped for.
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He added: "While some will see this is a table setting for yet another change in UK monetary policy, others will be comforted by the Bank of England’s own words that negative rates at this time could be less effective as a tool to stimulate economy than other measures."
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The central bank also said it will keep its current quantitative easing programme - the printing of more money to go into the economy - at £745billion.
The MPC forecasts GDP will continue to improve but it isn't likely to exceed its levels from the end of 2019 until at least the end of 2021.