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Chief economist update: UK plans for jobs

The United Kingdom has followed the script dictated by the coronavirus pandemic in much of the world.

On March 23, the government imposed strict lockdown measures, giving "bobbies" power to fine people leaving their homes for "non-essential" reasons. These restrictions were then gradually eased in stages: 13 May - some restrictions on who could go to work and meetings with persons from different households were eased; 15 June - re-opening of "non-essential" businesses; 4 July - social distancing gap lowered from two metres to one "to allow businesses to be able to reopen".

The relaxation of restrictions in the UK (aided by monetary and fiscal stimulus measures) - like in most other nations around the world - sparked a recovery in economic activity, underscored by the rebound in the IHS/CIPS purchasing managers indices (PMI).

The manufacturing PMI rose to a reading of 50.3 in June (indicating expansion), the second straight month of increase after dropping to a record low 32.6 in April. While they remain in contraction territory, both the services PMI (47.1) and the composite PMI (47.7) have also recovered from their April lows, 13.4 and 13.8, respectively.

Not surprisingly, the FTSE-100 has also recovered. The benchmark index has rallied by 23.3% from the nine-month low recorded in March.

However, the index remains 18.4% lower this year to date, reflecting investors' continued sense of caution amid the lingering uncertainty surrounding the pandemic so much so that the Bank of England (BOE) and the Exchequer remain on their toes.

While the BOE kept the bank rate unchanged at a record low 0.1% at its latest meeting in June, it increased its GILT purchases by £100 billion - taking the total stock of asset purchases to £745 billion - and declared that it stands ready to take further actions if necessary.

More recently, the chancellor of the Exchequer, Rishi Sunak, announced a package of measures to support the labour market.

"A Plan for Jobs" contained three basic initiatives:

  • Supporting jobs. "UK Employers will receive a one-off bonus of £1,000 for each furloughed employee who is still employed as of 31 January 2021."
  • Creating jobs. "The plan will also create tens of thousands of jobs through bringing forward work on £8.8 billion of new infrastructure, decarbonisation and maintenance projects."
  • Protecting jobs. "...the Government's new Eat Out to Help Out discount scheme will provide a 50% reduction for sit-down meals in cafes, restaurants and pubs across the UK from Monday to Wednesday every week throughout August 2020."
"The rate of VAT applied on most tourism and hospitality-related activities will also be cut from 20% to 5%."

"...we're introducing a temporary increase to the Nil Rate Band of Residential SDLT (Stamp Duty) from £125,000 to £500,000 until 31 March 2021."

This would go a long way towards supporting the labour market and the overall economy.

Read our full COVID-19 news coverage and analysis here.

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