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Ditching Furlough Scheme Will Add To UK’s Economic Woes


Ditching furlough scheme will add to UK’s economic woes, warn unions and firms

Rishi Sunak’s decision to wind up the furlough scheme today will intensify Britain’s economic woes, an array of unions, business groups, employment experts, City firms and politicians have warned.

With signs of activity slowing even before pressures on supply chains began to mount over the past few weeks, the chancellor was criticised for cutting off a wage-subsidy lifeline that is still supporting well over a million jobs.

Frances O’Grady, the TUC general secretary, said the end of the furlough scheme coupled with the £20 a week cut in universal credit next week meant the government was heading into the winter with no plan to protect workers.

“Ministers should rethink the end of furlough. Many workers in hard hit industries are still furloughed and need support for longer. Otherwise, we may see a rise in unemployment,” O’Grady said.

Business leaders warned of an “autumn storm” from the government dismantling emergency pandemic support schemes at a time when the economic recovery from Covid-19 was faltering.

The coronavirus Job Retention Scheme was launched by Sunak on 20 March last year, after consultation with unions and bosses, covering 80% of a furloughed employee’s wages, up to £2,500 a month.

The Federation of Small Businesses (FSB) said the end of the furlough scheme, the scrapping of the small employer sick pay rebate, and the closure of the government’s apprenticeship incentive scheme would add to pressure on companies.

Mike Cherry, the FSB’s national chair, said: “It’s potentially a dangerous moment. As the weather turns colder, so too will the operating environment for many firms. With recent economic growth numbers having fallen below expectations, the upcoming festive season may not provide as much of a boost as hoped to many small businesses’ bottom lines.”

The government has spent around £70bn to support the wages of more than 11.6m jobs over the past 18 months, and Sunak is hopeful that a record stock of more than a million job vacancies will absorb workers coming off furlough.

However, employment experts warned this was unlikely because of mismatches between vacancies and where most workers were furloughed. One of the UK’s biggest recruitment firms said the end of furlough was unlikely to help firms address chronic staff shortages in some sectors of the economy.

Niki Turner-Harding, senior vice-president of Adecco UK & Ireland, said: “The end of the furlough scheme won’t turn the tables when it comes to the candidate-led environment that jobseekers are experiencing right now. Not least because those employees still furloughed work in industries most affected by the current situation, such as the travel industry.”

As many as 1.6 million workers remained on furlough at the end of July according to the latest official figures from HMRC, representing about 5% of the overall workforce. However, large numbers of workers in sectors of the economy hardest-hit by Covid-19 are still receiving emergency wage support from the state, with fears the end of the scheme will drive up unemployment.

Usage of the scheme peaked at almost 9 million in May 2020 during the first wave of the pandemic, and at about 5.1 million during the winter lockdown earlier this year. However, the rate of workers returning to their jobs has slowed steadily in recent months despite the reopening of the economy, as certain sectors remain under intense pressure.

More than half (51%) of all air passenger transport workers in Britain were still on furlough at the end of July, the highest of any industry. More than a quarter of travel agents and tour operators are in the same position, in a stark contrast to the 5% average for all sectors.

Christine Jardine, Treasury spokesperson for the Liberal Democrats, warned Thursday’s sudden stop could trigger an economic crisis akin to Black Wednesday in 1992 when Britain crashed out of the European Exchange Rate Mechanism. Jardine said Sunak risked a “coronavirus Black Thursday” unless he prolonged the furlough to the 10 most affected sectors.

The chancellor insisted now was the right time to close the scheme and encouraged companies to make use of other government support measures, including the super-deduction tax break and kickstart job creation scheme.

“I am immensely proud of the furlough scheme, and even more proud of UK workers and businesses whose resolve has seen us through an immensely difficult time. With the recovery well under way, and more than 1 million job vacancies, now is the right time for the scheme to draw to a close,” he said.

Susannah Streeter, senior investment and markets analyst at the wealth management firm, Hargreaves Lansdown, said: “Any hope that the end of the furlough scheme might be the magic wand to solve the supply chain crisis is likely to be wishful thinking.”

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UK’s Truss defends economic plan that sent pound tumbling

UK’s Truss defends economic plan that sent pound tumbling

British Prime Minister Liz Truss on Thursday defended her economic plan and shrugged off the negative reaction from financial markets, saying she’s willing to make “difficult decisions” to get the economy growing.

In her first public comments since the government’s announcement of billions in uncosted tax cuts roiled markets and drove the pound to record lows, Truss said Britain was facing “very, very difficult economic times.” But she said the problems were global and spurred by Russia’s invasion of Ukraine.

She spoke after the Bank of England took emergency action Wednesday to stabilize U.K. financial markets and head off a crisis in the broader economy after the government spooked investors with a program of unfunded tax cuts, sending the pound tumbling and the cost of government debt soaring.

Truss told BBC local radio that “we had to take urgent action to get our economy growing, get Britain moving and also deal with inflation.”

“Of course lots of measures we have announced won’t happen overnight. We won’t see growth come through overnight,” she said. “What is important is that we are putting this country on a better trajectory for the long term.”

In a series of interviews, Truss said her government’s decision to cap energy bills for households and businesses would help tame inflation and help millions of people facing a cost of living crisis.

But it was not that decision that alarmed the markets. It was the government’s announcement on Friday of an economic stimulus program that included 45 billion pounds ($48 billion) of tax cuts and no spending reductions — without an independent economic assessment of the cost and impact.

The Bank of England warned that crumbling confidence in the economy posed a “material risk to U.K. financial stability,” and said it would buy long-term government bonds over the next two weeks to combat a recent slide in British financial assets.

The bank’s former governor, Mark Carney said that the government and the central bank appeared to be pulling in different directions.

“Unfortunately having a partial budget, in these circumstances — tough global economy, tough financial market position, working at cross-purposes with the Bank — has led to quite dramatic moves in financial markets,” he told the BBC.

The pound traded at around $1.08 on Thursday, above its record low of $1.0373 on Monday. It has lost some 4% of its value since Friday.

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Stimulus Packages Provided During Pandemic Triggered Inflation- CBN

The Central Bank of Nigeria (CBN) has attributed the rising inflationary rates to the stimulus packages provided to citizens during and after the pandemic.

It added that although this increased spending, it also created global supply challenges.

CBN’s director, Monetary Policy Department, Hassan Mahmoud, said this on Wednesday at a post-MPC briefing tagged: “Unveiling Facts behind the Figures’’.

The Monetary Policy Committee had on Tuesday, unanimously voted to increase interest rate to 15.5 per cent.

“A lot of households and small businesses were injected with stimuluses; the U.S did two trillion dollars, Nigeria did about five trillion Naira, these increased the ability of people to spend.

“But the supply side could not meet up with the demand because that volume of injection was far more than the regular intake for those economies, this made prices go up,’’ he said.

Mahmoud also blamed the Russian-Ukraine war, as well as the resurgence of COVID-19 in China for the rise in global inflationary trend.

“That region accounts for more than 50 per cent of global commodity supply and 38 per cent of global oil and gas supply. The war resulted in some shortages which made prices go up.

“Then the COVID-19 lockdown in China. The country is the largest importer of commodities across the globe,’’ he added.

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China’s yuan slides to 14-year low against US dollar

China’s yuan slides to 14-year low against US dollar

China’s yuan fell to a 14-year low against the dollar Wednesday despite US central bank efforts to stem the slide after U.S. interest rate hikes prompted traders to convert money into dollars in search of higher returns.

A weaker yuan helps Chinese exporters by making their goods cheaper abroad, but it encourages capital to flow out of the economy. That raises costs for Chinese borrowers and sets back the ruling Communist Party’s efforts to boost weak economic growth.

The yuan fell to 7.2301 to the dollar, its lowest level since January 2008. One yuan was worth about 13.8 cents, down 15% from its March high.

The yuan has exceeded expectations it might fall to 7 to the dollar after the Federal Reserve started aggressive rate hikes to cool inflation that is at a four-decade high. The Fed has raised rates five times this year and says more increases are likely.

By contrast, the People’s Bank of China has cut interest rates to boost growth that fell to 2.2% over a year earlier in the first six months of 2022 — less than half the official 5.5% target.

The yuan is allowed to fluctuate up or down 2% from its starting price each day in tightly controlled trading. That prevents big daily swings, but down days can add up to a big change over time.

To shore up the exchange rate, Beijing cut the amount of foreign currency deposits Chinese banks are required to hold as reserves to 6% from 8% as of Sept. 15. That increases the amount of dollars and other foreign currency available to buy yuan, which should push up the exchange rate.

Still, that reserve cut is unlikely to stop a slide that is driven by “a strong U.S. dollar and the expectation of more Federal Reserve hikes,” said Iris Pang of ING in a report.

“Less aggressive rate hike talk” might help the yuan rally, but it might weaken further “if the Fed maintains its very hawkish tone” into next year, Pang wrote.

Chinese officials have previously promised to avoid “competitive devaluation” to gain an advantage in trade.

The yuan sank in 2019 during trade tension with then-President Donald Trump. That prompted suggestions Beijing was trying to reduce the impact of U.S. tariff hikes, but there was no official confirmation. The currency later strengthened.

Other governments also are struggling to manage capital flows under pressure from Fed rate hikes. On Friday, Vietnam’s central bank raised a key interest rate in what economists said appeared to be an effort to stop an outflow of money in search of higher returns.

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