BOE’s Haldane Says U.K. Can End Furlough Before Rebound Complete

(Bloomberg) -- The Bank of England’s chief economist said the government can afford to end its furlough plan before the U.K.’s recovery is fully complete.

Andy Haldane, who has been the most publicly optimistic of the central bank’s rate-setting committee, said the economy may be growing quickly enough by the second quarter to absorb the 1 million people who lost their jobs in the coronavirus crisis.

“If we get that recovery that I expect to start coming on stream, probably at the rate of knots from the second quarter, that will hopefully then eat away and improve the prospects of reemploying those million people who have lost their jobs” Haldane said at a webinar on Tuesday. “Ultimately there’s a timing question -- timing the end of the furlough scheme in such a way that the economy is recovered sufficiently to prevent any losses of jobs.”

Business leaders are calling on the Treasury to extend the furlough past its current expiration date at the end of April. The plan offers 80% of wages to those temporarily out of work due to the coronavirus crisis. Chancellor of the Exchequer Rishi Sunak has already spent some 300 billion pounds ($400 billion) supporting workers and businesses through the crisis, pushing the national debt above 2 trillion pounds for the first time.

Haldane said joblessness could be capped so long as Sunak maintains his wage subsidies until the economy has recovered to within five to 10 percentage points of its pre-Covid level, he said. Output was 8.5% below its pre-Covid level in November, according to the government’s statstics office.

Tighter lockdown rules that started in the middle of December are now threatening to tip the U.K. economy into a double-dip recession. Haldane said that compared to the last slump in 2007, this downturn could be “a shorter, sharper shock.”

Even so, he warned that scars will remain, such as more severe levels of inequality.

Haldane said the most cost effective way of reducing the national debt is for the U.K. to boost its growth, echoing comments last year in which he suggested that could be achieved with a strong government strategy.

Sunak will outline his plans in the annual budget speech on March 3.

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