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BoE: Furlough means UK faces record labour market inactivity

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The Bank of England's former chief economist said today that he would have already voted to cut interest rates given the UK's slow growth rate and progress on taming inflation.
"I’d be cutting rates now, and probably would have been from the tail end of last year," Andy Haldane said.

The UK is facing what appears to be a record level of inactivity in its labour market as huge numbers of people are on furlough or facing unemployment due to Covid-19, the Bank of England’s chief economist has warned. 

“We’ve seen activity across the economy collapse, and we’ve seen a rapid rise in inactivity among workers – both people being made unemployed, but importantly… 8m people underemployed due to furlough schemes,” said Andy Haldane. 

Speaking in an online discussion at the CogX technology conference, he added: “That’s a level of inactivity in the jobs market we haven’t seen, possibly ever.”

The BoE said last month that Britain’s unemployment rate was likely to double to nine per cent in the three months to June, excluding the millions of workers who have been placed on furlough within the government’s job retention scheme. 

Haldane has warned that the UK faces an unemployment crisis on a scale not seen since the 1980s, telling The Telegraph last month: “We need to find a way of reabsorbing all of that labour as quickly as possible in good jobs.”

Last month, chancellor Rishi Sunak extended the furlough scheme to October, in a move expected to cost the government around £84bn.

UK companies have warned that they will struggle to contribute to furloughed workers’ wages as the job retention scheme begins to wind down. Employers will be required to meet some of the costs of their furloughed staff’s salaries from August.