BlackRock Investment Institute

Macro insights

UK restart reaching peak

The UK economic restart has accelerated, and growth momentum is yet to peak, in our view. The rapid spread of the Delta variant looks unlikely to derail the reopening, but the UK may still have some room to run before getting back up to its pre-Covid growth level – now expected to happen in the first quarter of 2022.

Back in business

Take-up of UK furlough scheme

Sources: BlackRock Investment Institute, Her Majesty's Revenue and Customs (HMRC), UK Office for National Statistics (ONS), with data from Haver Analytics, June 2021. Notes: the chart shows the share of private-sector employees participating in the government furlough program. The orange line shows data from the HMRC which run to April 2021. More recent estimates are obtained from the ONS Covid indicators for the UK economy.

The biggest challenge ahead will likely be the end of key policy support measures. The most important of these is the furlough scheme, set to expire at the end of September. The scheme has been instrumental in cushioning the Covid blow to the labor market. As much as about a third of private-sector employees were furloughed in early 2020, compared with an estimate of just 6.5% today. See the chart. A sharp – albeit temporary – rise in unemployment may follow the program expiry, while the labor market adjusts and workers find new jobs elsewhere.

We expect the Bank of England (BOE) to look through higher near-term inflation – which it expects to exceed 3% later this year – and, like the U.S. Federal Reserve, focus instead on the labor market recovery. We see the BOE maintaining monetary policy support after the end of support measures such as the furlough scheme and through the restart, given the risks to the labor market – and the broader economy.

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Elga Bartsch
Head of Macro Research
Read bio
Nicholas Fawcett
Macro Research

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