Former prime minister Gordon Brown attacked the Bank of England for not concentrating enough on jobs. He thinks that the model of independence he created for Threadneedle Street in the late 1990s needs a rethink.
Brown was the one who was responsible for granting the bank operational freedom to set interest rates. The UK’s central bank should be more like the US Federal Reserve. They need to take employment as well as inflation into consideration when making policy decisions.
In the UK all institutions have to make sure that the level of employment is their great priority. Brown said that he has been the chancellor responsible for the Bank of England 22 years ago and he is really disappointed right now about how the Bank of England is not paying much attention to a greater emphasis on maximizing employment opportunities.
Since Gordon Brown’s reforms, this bank has had the statutory duty to hit the government’s 2% inflation target. But after the Brexit referendum vote, the bank adopted a comfortable approach to achieve that goal. Since the COVID-19 has started, The bank’s monetary policy committee has cut interest rates to 0.1% and added £200bn into the economy through quantitative easing. The Bank of England exchange rates against sterling is 1.2996 to £1.09.
Brown thinks that The bank should announce an operational target until the employment rate returns to the pre-crisis level. He thinks that unemployment needs to be taken as seriously as inflation. So, more of a radical approach is needed.
What happens when inflation and unemployment are matched up?
A good correlation between Inflation and unemployment would help the UK to get back to the normal soon. It creates a unique set of challenges for fiscal policymakers. Policies which are boosting economic output and bring down unemployment tend to worsen inflation, while policies that rein in inflation frequently worsen unemployment.
According to the economic theory, when unemployment rates fall, the rate of inflation rises. It has been formed by “The Phillips curve”.
Through modern history, inflation and unemployment have maintained an inverse relationship. From a logical point of view, The Phillips curve really makes sense. When unemployment is low, more consumers have discretionary income to purchase goods. While good demand rises, prices follow. During periods like this pandemic, consumers purchase fewer goods, which puts everything down on prices and reduces inflation.
Mass unemployment in the UK
The coronavirus crisis risks mass long term unemployment and firms can’t go further without support. The coronavirus job retention scheme is due to end on the 31s of October. At first, government-paid people. But the firms had to start making a contribution to wages in September as the scheme began to wind down. Prime minister Boris Johnson has said that extending furlough past October would only keep people in suspended animation.
Pay and skills
The economic impact of Covid-19 is that the pandemic is risking the widening gender pay gap due to the differences in the hours of paid work in lockdown. Works patterns are changed permanently.
The federation of small businesses (FSB) said that policymakers will need to look closely at estimates to stop the mass unemployment including a successor scheme.
The priority should be protecting viable small businesses and all the jobs they are providing. They have been attacked disproportionately by Pandemic and since the restrictions are continuing in the UK, the staff is suffering because of being left aside.
The economic crisis is here to stay. This week’s leading business groups warned that the UK risks a second wave of job cuts and slower economic growth if it does not extend its furlough scheme.
Germany, Australia, France, and Belgium have already decided to extend new wage support schemes into next year.
Gordon Brown is also telling the BBC that the UK should emulate other countries’ short term working schemes.
Mr. Brown said that the scheme of furlough was a Cliff edge and could trigger a tsunami of unemployment. Short- terms could allow firms to reduce employees’ working hours while keeping them in jobs. He suggested that in order to not destroy even more capacity and skills in the economy.
The former prime minister made his comments about launching the alliance for full employment. He brought together the Welsh first minister Mark Drakeford and a number of metropolitan mayors to press for actions on jobs.
Gordon Brown believes that the government had spent billions on rescuing the economy in the early months of the crisis, but they failed to put together a plan for recovery. Measures to help the under 25s were inadequate and bad compared with the scheme Labour they had in 2009.
Young people are now dealing with worth times and the Government is paying only 3.5 million under 25s for six months.
The UK’s unemployment rate has been at 3.9% since the lockdown was introduced and the Bank of England expects that rate to double to 7.5% by the end of the year when Government-funded support schemes will end.
Thousands of jobs have been cut down by famous brands like Rolls-Royce, Costa Coffee, Pizza Express, and British airways.