MNI POLICY: BOE DMP Survey Sees Employment Hit Persisting

Although UK business executives expect sales to recover in coming quarters, the hit to employment is expected to persist, supporting the view of Monetary Policy Committee members that Covid-19 scarring could well endure, the Bank of England's August Decision Maker Panel survey shows.

The survey also found that all but a handful of business are now assuming that there will be no rapid end to the pandemic, denting the BOE's hoped-for 'V-shaped' recovery. Just 2.9% of respondents expected Covid uncertainty to have been resolved by December this year with almost one-in-four not expecting it to go away until 2022 or after.

The survey found that while executives expect a fairly steady improvement in sales in coming quarters they expected reduced employment levels to persist. The DMP found that businesses estimated that as a result of Covid-19, employment would be 7.0% lower in Q3 than it would have without the pandemic and then 8.0% lower in Q4 and 7.1% lower in Q1.

UNDERLINES MPC VIEW

In evidence to lawmakers Wednesday BOE MPC members highlighted the possibility that economic scarring from Covid could be deeper than in the Bank's latest central economic forecasts, with unemployment staying elevated as employees struggle to switch from hard hit sectors to more resilient ones.

By the second quarter of next year the decline in employment levels was expected to ease, but to still be 5.4% below its pre-Covid path.

In contrast, sales were expected to show a relatively smooth recovery from -14% in Q3 to -12% in Q4, -10% in Q1 and -5% in Q2 2021.

The DMP survey also highlighted the extent to which firms are cutting back on investment, which was estimated to be down 31.6% in Q3 as a result of Covid and 25.5% in Q4.