UK economy may fall from its ‘sweet spot’ without new measure

UK economy may fall from its 'sweet spot' without new measure

A Bank of England (BoE) official said that the central bank would need to consider new fiscal aid to hit its annual inflation target of two percent.

It appears that the U.K. economy is not out of the woods yet despite its recent rebound. In a webinar streamed on Friday, September 4, a policymaker from BoE warned that with the worrying state of the labor market today, fresh measures will be needed to support the continued recovery of Britain’s economy.

Stimulus aid needed for U.K. economy

A member of Bank of England’s rate-setting Monetary Policy Committee (MPC) named Michael Saunders said that the country’s temporary and “very limited sweet spot” in terms of its economy “may now be fading.”

As a response, he said that the bank would need to provide another round of stimulus to prop up the U.K. economy’s rally. Continued fiscal aid would also help avoid inflation and rather help the bank reach its 2% annual inflation target.

“The economy’s faster than expected rebound in the last few months has reflected a benign window in which large fiscal support has coincided with the relaxation of lockdown measures and low infection rates. This window may now be closing,” the BoE policymaker explained via webinar.

Saunders continued that prior this month, the MPC released a recovery forecast with a positive outlook of the U.K. economy over the next two years. Yet he thought the recovery would not be as strong as the previous forecast when it penciled in 2021’s expansion of 9% and below 4% for 2022.

UK economy may fall from its 'sweet spot' without new measure

He also anticipates a further rise in unemployment as the government reduced its fiscal help and more people began to hunt for jobs.

Labor market is “very worrying”

At the same time, Saunders—who also warned about Brexit’s possible threat to the U.K. economy—explained that the current state of labor market is “very worrying” and that unemployment is likely to climb significantly in the coming months.

The BoE official explained that the overall number of hours worked had dropped by 18% between the first and second quarters.

He also stressed the steep rise in the number of workers who are away from paid work temporarily as well as those who are working fewer hours than normal, which all contribute to the worrying state of the labor market.

In addition, the number of furloughed employees had dived from 30% to 11% since May too, which “implies that of those still on furlough, a relatively high share may become unemployed.”

The BoE’s Monetary Policy Committee’s next meeting is set to take place on September 17, 2020.

Images courtesy of Dark Dwarf/Flickr, Field Engineer/Pexels

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