The Bank of England has become less gloomy about unemployment amid signs that budget measures and a more resilient than expected economy will improve the UK’s jobs’ outlook.
Announcing the decision of the latest meeting of its nine-strong monetary policy committee (MPC), Threadneedle Street said it was likely its next set of economic forecasts – due out in early May – would forecast a jobless peak below the 7.75% pencilled in last month.
The MPC voted unanimously to keep official interest rates at their record low of 0.1% and to make no changes to the money creation programme known as quantitative easing, but said the picture had improved since its February meeting.
Minutes of the meeting said Rishi Sunak’s decision to extend the furlough until the end of September had been a factor in changing the outlook for the unemployment rate, which on the internationally agreed Labour Force Survey measure now stands at just over 5%.
“The extension of the government’s employment support schemes, beyond the point at which most restrictions on activity might be lifted, was likely to mean that the near-term rise in the LFS unemployment rate would be more moderate than had been suggested by the MPC’s February report projections, which had been constructed on the basis of existing government policy at that time,” the minutes said.
“As support from those schemes would still be available when the economic recovery was expected to be proceeding strongly, the risk of currently furloughed workers not being reintegrated smoothly into the labour force was reduced. Some recent indicators also suggested that there had already been a stabilisation in employment trends.”
The MPC said the UK would benefit from the knock-on impact internationally of Joe Biden’s $1.9tn (£1.4tn) stimulus package, which was twice as generous as the Bank had anticipated.
However, the minutes made clear that some MPC members remain cautious about the likely pace of recovery from the UK’s deepest slump in more than three decades.
“Since the MPC’s previous meeting, the news on near-term economic activity had been positive, although the extent to which that news changed the medium-term outlook was less clear,” the minutes said, noting that the outlook for the economy remained unusually uncertain.
“Different MPC members placed different weights on the balance of risks around the outlook.”
The MPC said inflation – currently 0.7% – was expected to return swiftly to around the 2% target in the spring.
If correct, that would potentially lead to problems for the government over NHS pay. Ministers have said that the recommended 1% offer would represent an above-inflation increase.