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Rabobank analysts say that with the UK’s Coronavirus Job Retention Scheme (CJRS) being tapered, unemployment will undoubtedly rise in the next few months.

Key quotes

“Other labour market data, such as on vacancies, already point at significant labour market weakness. The Beveridge curve suggests that unemployment would already have been in the 8-10% range if it weren’t for the CJRS.”

“The UK’s collective paycheck will decline and uncertainty, due to the pandemic and to Brexit, remains high. This incentivizes the private sector to deleverage and to increase their savings. An expansionary fiscal position could accommodate this process, while a contractionary fiscal position could lead to yet another austerity trap.”

“Yet accommodative fiscal policies face external constraints. History is not kind to countries that run persistent twin deficits; negative government bond yields and an increasingly not-so-Global Britain aren’t helping either. This makes the pound a vulnerable currency. The government may still see this as a risk worth taking, in particular, if it simultaneously pursues an industrial strategy that aims to lower the UK’s current account deficit.”