Unemployment has already peaked at only 1 percentage point above its pre-crisis level because of the government’s support measures during the pandemic, the Bank of England has said.
The furlough scheme prevented a sharp rise in unemployment last year even though the economy contracted by almost 10 per cent. While some are still forecasting a rise in joblessness when the support is withdrawn in September the Bank said that the economy would have largely recovered its pandemic losses and be able to cope.
In its latest monetary policy report, the Bank said that unemployment had already peaked at 4.8 per cent and would not hit its previous projection of 5.4 per cent. It added that the economy was rebounding strongly from the pandemic and still on course to fully recover by the end of the year, even though the spread of the Delta variant of the coronavirus and a rise in the number of people self-isolating was affecting growth in the third quarter.
Andrew Bailey, the governor of the Bank, said: “In the labour market we now expect the unemployment rate to be around a quarter of a percentage point lower in 2021 and 2022, declining to a level of 4¼ per cent in 2022. This means that the profile for unemployment now looks very different to that envisaged last year, with no spike up as support measures come to an end.
“This points to the success of policy measures in avoiding a marked rise in unemployment in the face of such a large downturn in economic activity.”
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When the country first went into lockdown in March last year, economists said that joblessness would jump to as high as 12 per cent, the highest rate of unemployment since the 1980s. Forecasts have come down steadily over the past year as Rishi Sunak, the chancellor, extended the job retention scheme. The successful vaccination programme and the easing of lockdown measures mean that the economy is recovering strongly. Workers have steadily been coming off furlough as the economy has reopened and fewer than two million people are now drawing on the support, down from a peak of 8.9 million people in May last year.
Not everyone who comes off furlough will find a job and redundancies will rise but the unemployment rate is unlikely to jump sharply, partly because levels of inactivity have not been falling as the Bank anticipated. During the pandemic, many workers left the labour market altogether, either because they gave up looking for work or had to take on caring responsibilities.
The Bank initially expected unemployment to rise as the economy reopened because these workers were expected to re-enter the labour market and become unemployed. However, inactivity rates have risen since February. This may be because older workers have been taking early retirement instead of looking for new jobs.
