Bank of England warns UK unemployment will hit 2.5m after Covid-19 slump – as it happened

Rolling coverage of the latest economic and financial news, as BoE warns one million jobs will be lost by Christmas

• Latest: Bank says unemployment to double, to 2.5m
• One million people expected to lose their job this year
• Introduction: Bank sees material rise' in joblessness
• Downturn less severe than feared...but recovery expected to take longer
• Bank: We're looking at negative interest rates

3.01pm BST

Time for a recap.

The Bank of England has warned that UK unemployment will spike at 2.5m by the end of the year, as firms cut jobs due to the shock of Covid-19. In its latest forecasts, the Bank predicts the jobless rate will almost double to 7.5%, and only fall slowly in 2021.

Employment appears to have fallen since the Covid-19 outbreak, although this has been very significantly mitigated by the extensive take-up of support from temporary government schemes.

Surveys indicate that many workers have already returned to work from furlough, but considerable uncertainty remains about the prospects for employment after those support schemes unwind.

Related: Bank of England says economic shock of Covid-19 less severe than expected

In reality, the type of the recovery the Bank of England seems to predict is a square root one" rather than a V-shaped one. Irrespective of the alphabetical or mathematical details of the shape of the recovery, the main point is that this fairly slow recovery is built on on the assumption that the UK policy rate will turn negative to -0.1% and remain negative until the third quarter of 2023!

Given the possible distortionary impact of negative interest rates on the economy (negative interest rates will shake the confidence of consumers/depositors in the economy), the main message from the BoE's report is: do not go negative!"

Related: Another 1.18m Americans file for unemployment as benefits expire

Related: Glencore shares slide as it scraps 2bn dividend and posts first-half loss

2.39pm BST

The drop in US initial jobless claims seems to have reassured traders in New York.

The tech-heavy Nasdaq index ticked higher at the start of trading, up 5 points to a new record high of 11,003.

This is messed up:

1.2 million new jobless claims is 500,000 higher than the worst week of Great Recession

31 million are on unemployment. Benefits have been cut, so they can't afford rent and groceries

Temporary layoffs are becoming permanent

And yet the stock market goes up

1.51pm BST

Here's our US business editor Dominic Rushe on the US jobless data:

Another 1.18 million people filed for unemployment benefits last week as economists worry the expiration of enhanced unemployment benefits will lead to a sharp drop-off in household spending and set back the US economy's near-term recovery.

Claims dipped last week after two weeks of rises but the latest figure from the department of labor marked the 19th week in a row that claims have topped 1m. Before the coronavirus pandemic gripped the US, the record for weekly claims was 695,000 in October 1982.

Related: Another 1.18m Americans file for unemployment as benefits expire

1.48pm BST

If you ignore seasonal adjustments, the number of new US unemployment claims actually fell below one million last week (rather than 1.18m, seasonally adjusted).

However, as Ben Casselman of the New York Times flags up, both numbers ignore gig economy' workers.

Another 1.6 million Americans filed new claims for unemployment insurance last week. That's 984k regular state claims (not seasonally adjusted) plus 656k under the Pandemic Unemployment Assistance program. Still extremely elevated, but falling again.https://t.co/8yitQ4G6pk pic.twitter.com/0hEMZ1BgMy

Note that on a seasonally adjusted basis, there were 1.2 million claims, which would make this the 20th straight week over a million. pic.twitter.com/hRgc1XrCfp

1.44pm BST

Economists are encouraged that the number of Americans seeking jobless benefit had fallen.

But they're also concerned that more than a million people filed fresh jobless claims - showing that some US firms are still cutting jobs as the pandemic rages.

Jobless claims down a bit and below expectations at 1.19 vs 1.43 mil with continuing claims down also at 16.1 from 16.9. Still very high numbers but slight improvement.

BREAKING: 1.2 million filed NEW unemployment claims last week, a decline of 249,000 from the prior week.

It's the lowest level since the crisis started but the 20th week of over a million jobless claims.

Bottom line: A lot of layoffs are becoming permanent at this point.

US initial jobless claims totaled 1.19 million last week, the lowest level since the #Covid19 outbreak. pic.twitter.com/2VY1m8J9Q8

1.34pm BST

Newsflash: The number of Americans filing new claims for unemployment benefit has dropped sharply.

US initial jobless claims dropped to 1.186m in the week to 1st August, much lower than the 1.4m which economists expected.

US JOBLESS CLAIMS FELL TO 1,186,000 AUG 1 WEEK (CONSENSUS 1,415,000) FROM 1,435,000 PRIOR WEEK (PREVIOUS 1,434,000)

US CONTINUED CLAIMS FELL TO 16.107 MLN JUL 25 WEEK (CON. 16.720 MLN) FROM 16.951 MLN PRIOR WEEK (PREV 17.018 MLN) pic.twitter.com/t7HNyaKktI

1.23pm BST

BoE governor Andrew Bailey has warned that some parts of the UK economy" will struggle to recover from the economic shock of Covid-19.

In an interview with Sky news, he cites those businesses which involve people consuming at very close quarters, such as restaurants and bars. Here's a clip:

"There will be some parts of the economy that won't be viable going forwards."

Andrew Bailey, Governor of the Bank of England, says it is "reasonable" to think there will be "structural change" in the economy after the #coronavirus.

Read more: https://t.co/fJ86AxlYB8 pic.twitter.com/AsjkZAhR9n

1.19pm BST

Rachel Oliver, head of campaigns and organising at Positive Money, is also challenging the Bank of England to clean up its game:

In March Andrew Bailey told us that decarbonising the Bank's policies was a priority. But he's since gone back on his word, funneling billions of pounds towards companies wrecking our planet and laying off workers. We're here to encourage him to make the most of this opportunity for a green recovery so that the Covid crisis isn't followed by an even bigger climate crisis."

12.34pm BST

Greenpeace is also concerned that the Bank of England is supporting companies who are contributing to the climate crisis.

Charlie Kronick, Senior Climate Advisor, Greenpeace UK, says the Bank should heed NEF's warning that its corporate bond-buying stimulus programme is boosting polluters (as covered earlier).

This report makes it increasingly clear: without conditions on its loans to protect jobs and the climate, the Bank is failing in its duty - not just to protect those jobs and the environment - but ultimately to protect the UK's financial stability.

Investment decisions taken now will impact emissions for decades. There's simply no excuse for propping up companies which threaten our climate."

Approximately 57% of the value of the bonds purchased by the Bank are from the most carbon intensive sectors, but they only represent 13.8% of overall UK employment and contribute 19% to GVA (a metric used to measure the economic contribution of different sectors).
5/16 pic.twitter.com/Xw9GDlG2CX

12.20pm BST

In other monetary policy news, the Reserve Bank of India left interest rates on hold today at 4%.

That surprised analysts, who had expected a cut to 3.75% due to the economic damage caused by Covid-19.

12.06pm BST

Our economics editor, Larry Elliott, say the Bank of England is thinking the once-unthinkable - could it impose negative interest rates in the UK?

He writes:

In the past, notably during the financial crisis of 2008-09, Threadneedle Street has publicly rejected the use of negative rates, warning that they would make banks less profitable and potentially drive some of them to the wall.

But as the Bank's governor, Andrew Bailey, noted on Thursday, life has moved on. Banks are less vulnerable than they were a decade or so ago, other central banks, including the European Central Bank and the Bank of Japan, have used them, and estimates of how low interest rates can go have moved down.

Related: Negative UK interest rates were once unthinkable. But tough times lay ahead

12.00pm BST

Back in the City, the FTSE 100 has just sunk back below the 6,000-point mark.

That's a loss of 117 points, or nearly 2% today, wiping out much of this week's recovery.

The FTSE 100 gave up a good portion of its recent gains on Thursday morning as investors weighed the latest decision on interest rates from the Bank of England," says

The Bank unsurprisingly keeps its powder dry, probably eyeing the end of the furlough scheme as a good point to reassess given the impact this might have on household finances.

11.41am BST

The economic picture is looking brighter in Germany.

German factory orders surged by 27.9% month-on-month in June, following a 10.4% rise in May. That's twice what economists expected, and suggests Germany is recovering from its slump earlier this year.

11.21am BST

UK pub chain Wetherspoon is cutting a third of its head office staff, blaming the slump in the sector this year.

Press Association has the details:

Wetherspoon has written to its head office staff to say that nearly a third of them risk losing their jobs amid a round of cuts at the pub chain.

The company said that 110 to 130 of the 417 roles in its head office could be axed as it scales back its expansion.

Wetherspoon has written to its head office staff to say that nearly a third of them risk losing their jobs amid a round of cuts at the pub chain https://t.co/khvyCig2Kn

11.06am BST

One in three UK building firms cut jobs last month, in another sign that the labour market is weakening.

Data firm Markit reports that construction firms accelerated their layoffs in June, due to anxiety about the economic outlook.

Worries about the speed of recovery contributed to a sustained decline in staffing numbers during July. The latest data signalled a sharp rate of job shedding, with around one-in-three survey respondents (34%) reporting a fall in employment.

10.49am BST

Climate change protesters gathered outside the Bank of England this morning, demanding that the central bank stops supporting industries which drive global heating.

The CBPS is not only at odds with government climate targets but also previous BoE climate commitments. Indeed, by its own admission the Bank has stated that CBPS is aligned with 3.5C of warming by the end of the century.

Moreover, just two weeks before announcing the expansion of the CBPS, governor Andrew Bailey suggested that excluding fossil fuels and realigning the Bank's corporate bond portfolio with the government's climate goals is a perfectly sensible thing to do'.

10.39am BST

Bank of England governor Andrew Bailey has told reporters that the UK faces some very hard yards'.

There are some very hard yards, to borrow a rugby phrase, to come. And frankly, we are ready to act, should that be needed."

10.32am BST

James Smith of the Resolution Foundation has tweeted the key points from the Bank of England's monetary policy report (released at 7am, if you're just tuning in).

He also points out that the Bank's forecast of unemployment hitting 2.5m is relatively optimistic, compared to the Office for Budget Responsibility's projections.

Key takeaway from this morning is the MPC's updated view on the impact of Covid-19 on the economy.

Here they marked up their forecasts significantly relative to May, with GDP now expected to contract by 9.5% this year, compared with 14% in May. pic.twitter.com/SBQ4q2dadk

But make no mistake this is still a bleak projection: with the Bank forecasting the weakest year of growth since 1921, although stronger than @OBR_UK. pic.twitter.com/HHpt9w76tz

And based on the Bank's nowcast for Q2, next week's GDP release is expected to show a fall of over 20% in the first half this year.

That is the largest hit to GDP for countries with published data up to 2020 Q2 (taken from the OECD database). pic.twitter.com/nAFK4MPXxy

Perhaps the most revealing forecasts are for unemployment where the outlook is particularly uncertain.

As shown below, this troubling outlook for activity is expected to lead to a sharp rise in the unemployment rate which peaks at 7.5%, lower than the 9% peak expected in May. pic.twitter.com/ZT5403W3bK

That is much more optimistic than the OBR's Central Scenario which had the unemployment rate rising to 11.9% (matching the 1980s all-time high).

All this highlights the uncertainty around the outlook for unemployment - there is clearly a risk that the rise could be very large.

10.26am BST

TUC General Secretary Frances O'Grady is urging the government to abandon its plan to end the furlough scheme in October, to prevent unemployment spiking.

O'Grady says chancellor Rishi Sunak must heed the Bank's warning that unemployment will jump to 2.5m by the end of this year:

The threat of mass unemployment has not gone away. Ministers must act now to save jobs.

That means extending the job retention scheme for businesses in hard hit sectors like retail, manufacturing, and aviation. Many companies have a viable future but need longer-term support to get back on their feet.

10.01am BST

The Bank of England has spelled out quite clearly that unemployment is probably going to hit 2.5m this year -- the highest in seven years.

As we explained earlier, that would mean the jobless total would almost double by Christmas, from the current level of 1.35 million people out of work and looking for a job.

In the MPC's projections, unemployment rises to around 7% by the end of the year as some workers are made redundant and hiring remains subdued.

That would represent around 2 million people out of work and searching for jobs (Chart 4.2), the highest total since 2013, and a clear sign of spare capacity in the economy.

The MPC judges that unemployment is likely to decline only gradually from this peak. Firms may be reluctant to make hiring decisions while uncertainty is high and the differential impact of Covid-19 on economic activity across sectors is likely to increase the mismatch between vacancies and those looking for work.

The pandemic has had a profound effect on the UK labour market. Social distancing rules have meant that businesses have had to adapt working practices and some have been shut for a time since March. The reduction in activity has also reduced firms' demand for labour. The number of vacancies fell to a record low in Q2) and existing workers worked many fewer hours.

10.00am BST

UK broadcasting company ITV has given a timely reminder of the turmoil in the UK economy, as my colleague Mark Sweney reports:

While our two main sources of revenue - production and advertising - were down significantly in the first half of the year and the outlook remains uncertain, today we are seeing an upward trajectory with productions restarting and advertisers returning."

We are doing well on our own and the share price is not reflective of the performance of the company or indeed the value of the company. We have very strong foundations... we have the ability I think to build the business and create value going forward.

9.36am BST

The Bank of England estimates that most furloughed workers will return to work as the economy picks up -- but there will still be a sharp rise in unemployment.

It explains:

Some firms, especially those in the worst-affected sectors, are likely to make workers redundant if sales do not pick up sufficiently quickly. Many firms in highly consumer-facing sectors, manufacturing and construction expect to reduce their employment materially in Q3 and Q4.

Some of these industries are labour-intensive, employing more workers per unit of output than average. This means the total fall in employment will be higher than if all industries were reducing their workforces by similar percentages.

9.26am BST

The Bank of England's new forecasts suggest that at least a million people will lose their jobs in the UK due to the pandemic.

Currently, there are over 34m economically active people. If unemployment peaks at 7.5% at the end of this year, as the Bank believes, that would imply an unemployment total of 2.5 million.

Contacts reported a deterioration in the employment outlook, with the rate of redundancies having increased in June and July, ahead of the start of mandatory employer contributions to the Coronavirus Job Retention Scheme (CJRS) in August.

The unemployment rate is expected to peak at around 7% in Q4, based on survey evidence, high-frequency indicators, and the historical relationship between unemployment and output.

This projection takes into account the expected sectoral pattern of output and, in particular, that the initial recovery in output is likely to be slower in more labour-intensive areas of the economy.

9.13am BST

The slump in the global economy in the last quarter was four times as bad as in the financial crisis more than a decade ago, the Bank believe.

It estimates that UK-weighted world GDP fell by around 9% in Q2 -- with major contractions in the US and Europe.

This is over four times larger than any quarterly fall recorded during the financial crisis. The severity of the contraction reflects social distancing measures being widespread across the UK's major trading partners for a large part of the quarter.

The fall in UK activity in Q2 is expected to have been larger than in some other countries (Table 2.A). That mainly reflects differences in the timing of lockdown measures, which were in place for a larger part of Q2 in the UK than in other economies.

The mobility indices recovered more slowly in the UK than the US and euro area (Chart 2.2), although the lifting of restrictions may provide more scope for recovery in the UK in Q3 .

8.31am BST

Here's our economics correspondent Richard Partington on the Bank of England's latest assessment of the UK economy:

The Bank of England has said Britain's economy is recovering more quickly than initially feared from the coronavirus pandemic as consumer spending rises, despite warning of significant risks to jobs and growth.

Leaving interest rates on hold at a record low of 0.1%, Threadneedle Street said Britain's economy would shrink by a fifth in the first half of this year as a result of lockdown measures imposed in March. Against a backdrop of rapidly rising job losses across the country, it also warned unemployment would double by the end of the year.

Related: Bank of England says UK economy recovering faster than first feared

8.26am BST

The pound has rallied this morning, as traders digest the Bank of England's latest forecasts.

There's some relief that the Bank thinks the slump in April-June was less severe' than feared.

8.16am BST

The Bank of England also says it is currently considering" whether it could possibly impose negative interest rates in the UK.

Four pages of today's report (starting on p12) explain that the Bank is examining whether the effective lower bound' for interest rates could be below zero. In other words, whether a negative policy rate could provide economic stimulus.

The MPC is currently considering whether the ELB for Bank Rate could be below zero; that is whether a negative policy rate could provide economic stimulus.

The effectiveness of a negative policy rate will depend, in part, on the structure of the financial system and how the policy transmits through banks to the interest rates facing households and companies. It will also depend on the financial and economic conditions at the time.

Bank of England on negative rates pic.twitter.com/RBh03fBU0W

8.05am BST

The Bank's forecasters predict that UK inflation will fall closer to zero this year:

After declining sharply to 0.6% in Q2, CPI inflation is expected to fall somewhat further below the MPC's 2% target over the second half of 2020.

Lower energy prices continue to weigh on inflation over coming months. In addition, the Government's announced cut to VAT will act as a drag on inflation over the second half of the year.

7.55am BST

High online spending has helped to cushion the shock of the Covid-19 slump, the Bank adds:

The recovery in UK output has been somewhat more rapid than was assumed in the MPC's illustrative scenario in the May Report.

That partly reflects lockdown measures being eased earlier than had been assumed. It also reflects activity having been stronger than assumed under lockdown, partly due to greater online spending.

7.55am BST

Although grim, the Bank of England's unemployment forecast is less dire than three months ago, Reuters points out:

Unemployment was expected to peak at 7.5% at the end of this year, almost double the most recent rate but lower than the BoE's previous estimate of just under 10%.

The overall economy now looked on course for a 9.5% drop this year - the worst performance in 99 years - compared with a 14% plunge in the BoE's May scenario, which would have been the worst in more than three centuries.

7.49am BST

The Bank of England is warning that the UK recovery from the pandemic will take longer than it thought three months ago -- but the downturn will also be less severe.

The MPC's new central projection' is that UK GDP does not return to its pre-Covid 19 size until the end of 2021. Back in May, it hoped that this would occur in the second half of 2021".

In the MPC's central projection, GDP continues to recover beyond the near term, as social distancing eases and consumer spending picks up further. Business investment also recovers, but somewhat more slowly. Unemployment declines gradually from the beginning of 2021 onwards. Activity is supported by the substantial fiscal and monetary policy actions in place.

Nonetheless, the recovery in demand takes time as health concerns drag on activity. GDP is not projected to exceed its level in 2019 Q4 until the end of 2021, in part reflecting persistently weaker supply capacity. Given the scale of the movements in output, as well as the inherent uncertainty over the factors determining the outlook, the evolution of the balance between demand and supply is hard to assess.

Output rose modestly in May, and is expected to have recovered to a greater extent in June. Nonetheless, GDP is expected to have fallen by 21% in Q2 as a whole, and by 23% relative to 2019 Q4.

The fall in output in Q2 is expected to have been less severe than was assumed in the illustrative scenario in the May Report. In that scenario, it was assumed that restrictions would be gradually unwound between early June and late September, but they were lifted earlier.

7.31am BST

The Bank of England's economists also fear that unemployment will remain high next year.

In today's Monetary Report, they warn:

Labour market slack persists over the first half of the forecast period, as unemployment is judged likely to decline only gradually after peaking in Q4.

The gradual decline in part reflects an expectation that hiring will pick up relatively slowly, consistent with uncertainty affecting companies' demand for labour. In addition, the MPC judges that there is likely to be some reduction in the efficiency with which people can find jobs. That tends to happen as unemployment rises, as some people take time to find new jobs, and their skills erode.

7.12am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Unemployment is on track to rise sharply by the end of the year as the Covid-19 pandemic hits the UK economy.

Employment appears to have fallen since the Covid-19 outbreak, although this has been very significantly mitigated by the extensive take-up of support from temporary government schemes. Surveys indicate that many workers have already returned to work from furlough, but considerable uncertainty remains about the prospects for employment after those support schemes unwind.

In the near term, the unemployment rate is projected to rise materially, to around 7% by the end of the year, consistent with a material degree of spare capacity.

UK GDP is expected to have been over 20% lower in 2020 Q2 than in 2019 Q4. But higher-frequency indicators imply that spending has recovered significantly since the trough in activity in April.