Sunak needs an emergency growth budget to help businesses bounce back after lockdown 2.0

Some of Britain’s biggest companies – Sainsbury’s, John Lewis and Lloyds Bank – announced they were axing another few thousand jobs today amid fresh warnings that 18,000 shops will have closed on the High Street by the end of the year.

The Bank of England has increased its bond-buying programme – otherwise known as quantitative easing – with another £150 billion because of fears that the UK’s GDP will shrink by 2% between October and December, when the second lockdown is due to end.

In another move, the Chancellor ripped up earlier plans to share the burden of protecting workers with companies by extending the furlough scheme until next March, adding another £40 billion to the country’s mounting debt pile.

It’s too early to say but forecasts suggest this furlough scheme – which will cover up to 80% of salaries – will have to cover around 5.5 million workers and potentially support another 2.5 million until April.

What a horror show. To make matters even gloomier, the BoE’s monetary policy committee predicts GDP will be 11% lower this year in real terms, worse than the 9.5% it forecast back in August. An annual contraction of 11% for 2020 would be the worst for 300 years – deeper than the downturn sparked by the First World War and the Spanish flu.

On a slightly brighter note – if that is possible – the MPC hopes the UK can avoid a double-dip recession although it also cautions the UK will not return to 2019 levels until the start of 2022.

The Bank’s committee also warns that unemployment will peak at 7.75% in the second quarter of next year, indicating another million people are to lose their jobs. Growth is expected to be 7.25% in 2021 – down from the 9% forecast.

These darkest of forecasts appear to be behind why the Chancellor, Rishi Sunak, was forced into a U-turn. He had put in place a less ambitious scheme for companies – sharing the cost of keeping employees on a part-time basis – but has been over ruled by Prime Minister, Boris Johnson, who is said to have wanted to continue the furlough scheme after the October deadline.

One of Sunak’s great fears in extending the furlough schemes was that too much of the money being spent on furlough would be wasted as it was going to support zombie companies, those which were already in trouble before the crisis and would probably have gone bust even without the lockdown.

But it appears Sunak has also had a change of mind after seeing the most recent figures and the carnage that so many companies – big and small – are going through. In the Commons today, he admitted that the recovery which had been seen throughout the summer months had been petering out and that businesses face much greater uncertainty.

On top of the job losses from Sainsbury’s and Lloyds, the Local Data Centre warned that by the end of the year 14% of all space on the high street would be empty. A net 7,834 outlets have closed in the first half of the year, up 115% on the first half year.

Much of the High Street downturn has come from the way customers are now shopping online, a trend accelerating well before the pandemic struck. But now there is a switch in what customers are buying: you don’t need so many smart clothes if you are commuting to the kitchen table rather than your city office. Instead, customers started a new habit of a lifetime by saving, spending on their gardens and DIY, spending on their homes and indeed buying new homes.

Yet the latest figures show that demand for construction workers and house-building is tailing off, down in October to the lowest level since the end of lockdown. That’s hardly surprising. The mood is changing fast: consumers are tightening their belts, terrified of losing their jobs in this second lockdown. The first lockdown was something of an experiment, even a novelty for many who were not too badly affected while many small businesses were able to adapt.

But now the reality is kicking in. That’s why Sunak has changed his mind, and gone for another big bazooka. Who pays for the government’s debt is anyone’s guess. Anyone trying to guess at this stage what happens to the economy next year is guessing blind.

What we do know is that Britain’s small business owners and entrepreneurs are incredibly resilient. The challenge now for Sunak is to find a way of helping them rebuild. Rather than another emergency rescue package, what we need next is an emergency growth budget with tax cuts for SMEs and incentives for investors.