The surprise fall in unemployment for the first three months of the year to 4.8 percent, up 0.8 percentage point from the pre-pandemic level, is the clearest indication that the furlough scheme has done its job of helping people stay in employment during the coronavirus lockdown.
The elephant in the room is the cost of the furlough scheme. It will be high, there is no getting away from it, and taxpayers will likely foot the bill – through tax hikes and potential spending cuts. But for now, signs of recovery in the labour market are welcome rays of light as the UK emerges from a dark period from both an economic and humanitarian standpoint.
Douglas Grant, Director of Conister comments, “The fall in the UK unemployment level follows positive data last week on the rise in UK GDP for March, falling in line with what we’d expect as restrictions are lifted and the economy reopens. However, we must remember that the number of workers on payroll still remains significantly lower than before the pandemic and the UK’s SME debt burden is still ballooning. We are in serious danger of seeing a relentless flow of weak zombie-like companies falling off a loan default cliff. By the end of this year, it is expected that companies will have borrowed more than £60 billion to help them to survive the pandemic, according to the EY Item Club, and bank lending to businesses, including through the government schemes, could also increase by 5.4, equating to an extra £26 billion net of repayments. It is imperative that we avoid compounding this cycle by focussing solely on supporting sectors and businesses that are resilient and agile enough to adapt to the new economy.
“We believe the introduction of the recovery loan scheme (RLS) will certainly help. We are pleased to see the Government look beyond the initial triage phase and instead identify, prioritise and protect our most resilient individual business sectors and segments. However, we must also acknowledge that default rates across the country will increase significantly over the next three to six months and unfortunately there is more pain to come. Demand for appropriate debt collection and management services for SMEs will grow as the business sector recovers from the damage caused by the pandemic.
“At Conister we have delivered upon all of our initial objectives. We have allocated our full CBIL and BBL allocation and have applications that we hope can be accredited under the newly launched government support initiative, the Recovery Loan Scheme. We will focus on lending this to robust business sectors that we believe will thrive in the future. Conister will continue to do all it can, working alongside Government and traditional lenders, to support British businesses.”
