Furlough payments decrease as UK economy ramps up

The UK economy is showing strong signs of recovery with about 10% of the workforce still being on the Furlough Scheme.

This marks the lowest level of Furlough claimants which 2021 has seen so far with 10% totalling 2.7 million people, the lowest quantity since October 2020.

So, in a months time, the UK has seen Furlough claims drop from 3.3 million to 2.7 million between April and May.

Due to the lockdown, many individuals in industries such as hospitality, leisure and retail have lost their jobs as these workers came from mainly cash in hand businesses that were extremely reliant on demand from tourists.

However, the lockdown caused complications as travel was banned between countries and these areas of the economy saw a cyclical loss of demand.

Consequently, firms in hospitality and retail were forced to lay off workers, but, due to the existence of the Furlough Scheme, these workers were protected as they retained 80% of their wages throughout the pandemic.

This means that low skilled workers who were from these industries were hit particularly hard by the COVID-19 pandemic.

This is shown in the data as 31% of Furlough claims come from the accommodation and food industry with the most being sourced from the creative arts as 34% of claims originated from that industry.

However, now that the UK economy is regaining confidence due to the successful vaccine rollout, businesses within retail and hospitality are now beginning to pick up steam as travel restrictions are being relaxed with the implementation of green, amber and red lists.

These industries include hospitality, retail, leisure and others which were hit particularly hard by the pandemic.

Nevertheless, with newfound confidence, the likelihood is that these industries will see an increase in demand as pent up European consumers with pockets filled with lockdown savings go on foreign holidays to the UK to visit the nations rich history as they splash their cash on services that clump near tourism.

These industries are typically centralised in London due to the cities history associated with the royal family, consequently, London has seen better financial performance as the cities net fiscal surplus per head rose to £4,030.

This means that the UK government saw an increase in revenue relative to its expenditure.

This increasing revenue suggests better economic performance as the likelihood is that the UK government saw this rising revenue due to the rising activity of economic agents which raised VAT revenue for the government.

This is evidenced as, compared to March, April saw an increase of 9.2% of quantity bought and total expenditure in retailers.

Additionally, the UK saw an increase in demand for goods and services from not just tourists, but natives too as due to rising confidence, domestic consumers began to buy out stores, especially retail ones as online sales have fallen to 29.4% of total retail sales.

Hence, with this surge of demand, these industries will see better financial performance and higher profits, meaning that they will be incentivised to increase supply thus signalling them to increase their factor inputs, such as labour.

Consequently, as firms do this, they bring workers back to employment thus taking them off the Furlough Scheme.

As a result of this, the amount of low skilled workers on Furlough from the previously mentioned industries has decreased.

Furlough claims from the arts industry have decreased from 40% to 34%, the ONS reports, with accommodation and food decreasing to 31% from 38%.

These reductions in Furlough payments show the UK government and other economic agents that firms are confident to reinvest their profits, thus illustrating to these agents that the UK economy is most likely recovering

This is illustrated in the most recent data as the UK economy grew by 2.1% in March 2021, thus illustrating how the Furlough scheme is a pretty good indicator regarding the UK’s economic outlook and performance.


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