By Kirsty Dorsey

You have got to feel for anyone forced to make forecasts in the middle of this economic maelstrom. Between the multitude of unknowns, unparalleled financial pressure and the hundreds of interlocking elements that drive modern commerce, the odds of forming any reliable projections right now are somewhere on par with Nicola Sturgeon and Boris Johnson striking up a romantic affair.

Recognising the magnitude of the sea change being brought by Covid-19, the Financial Conduct Authority (FCA), at the end of March, called for a two-week moratorium on the publication of financial results by all UK-listed companies. It was a prodigious move by the City watchdog, which in normal times is mandated to ensure the fair and timely flow of market information to all investors.

However, the FCA understood that the unfolding pandemic would render any discussion about current business performance meaningless. Companies needed time to absorb what was happening, and adjust their plans accordingly. Since the moratorium lifted, virtually every firm that has posted financial results has taken advantage of the more flexible regulatory environment by declining to provide customary guidance on future trading.

But others, like the Bank of England, don’t have a get-out-of-jail free card. Its reckonings are an important component in policy planning, and it is working in conjunction with Government to alleviate the economic fallout from this health crisis. The BoE doesn’t get the luxury of sitting this one out.

Yet even the central bank has been granted some room for fudging. In its latest monetary policy report this past week, the bank chose to forego its standard economic forecast in favour of an “illustrative scenario” that contained no less than nine wide-ranging and, in some cases, highly speculative assumptions. Rather than analysis based on quantified data, it is much more akin to telling a story about “what might be”.

The BoE’s assessment of the immediate situation was predictably grim, and generated applicably bleak headlines: “UK unemployment to double”; “Sharpest recession on record”; “Biggest crash in 300 years”; and so forth. In summary – for the few who might have missed it – the British economy looks set to shrink by 14% in 2020, a figure eclipsed only by that recorded in 1706, when the financial strain of funding armies in the War of Spanish Succession led to a 15% decline in GDP.

The silver lining put forward on Thursday by the BoE is that under its “plausible” scenario, the economy could rebound by 15% next year. Like the 2020 decline, 2021’s purported recovery would be one of the biggest ever on record, with GDP regaining its pre-Covid peak in the second half of next year.

“We expect the recovery of the economy to happen over time, although much more rapidly than the pullback from the global financial crisis,” said Andrew Bailey, who replaced Mark Carney as the bank’s governor as the outbreak was worsening in March.

One of the many assumptions this is based on is that lockdown restrictions start easing from the beginning of June, with no secondary wave of infections as a result.

The timing for lifting restrictions is at the crux of this past week’s increasingly strained relationship between the Prime Minister and Scotland’s First Minister. While Boris Johnson prepares for tonight’s 7pm broadcast in which he will lay out plans for easing restrictions in England – possibly as soon as tomorrow – Nicola Sturgeon has already announced an additional three weeks of lockdown in Scotland.

The balancing act between protecting public health and unlocking the economy is a delicate one. A secondary spike in infections with a return to stern restrictions on movement would not only be a further human disaster, but would also pile additional distress on an already crippled economy.

On the other hand – and despite all the talk about weaning workers and their employers off so-called “addiction” to the Government’s furlough scheme – most are desperately keen to get back to business. According to the BoE, every extra two weeks of lockdown is expected to cost about 1.25% of additional GDP in the short term, along with a 0.75 percentage point rise in unemployment.

Another one of the assumptions underlining the BoE’s 2021 recovery scenario is that the Coronavirus Job Retention Scheme, as it is properly known, “substantially lowers” the number of jobs lost. Under this furlough programme, the Government is currently paying 80% of the wages of more than six million workers across the UK.

A survey at the end of this week found that the programme has prevented approximately 374,000 redundancies in Scotland. Without furlough, the study estimated that approximately 15% of the total Scottish workforce would have been out of a job by now.

The BoE didn’t put a figure on how “substantially lower” job losses needed to be to uphold its assumptions, though it did presume that furlough and other Government support schemes will remain in place before gradually winding down by the end of September. Though the Bank was at pains to point out that its assumptions “should not be taken to imply that they are or should be Government policy”, indications from the Chancellor are that he intends to follow this sort of path.

Yet there remain grave concerns that if not handled properly, the winding down of support measures will transform furlough from jobs saviour into the waiting room for unemployment. Without changes to the way it is targeted and delivered, hospitality and leisure workers look particularly vulnerable, as their employers could be cut off from support even before they can reopen.

As shown by the announcement on Friday that Rolls-Royce will permanently shed some of its 4,000 furloughed UK workers, the Coronavirus Job Retention Scheme is no guarantee against further redundancies.

The central bank is already predicting that unemployment will spike to somewhere around 9% in the second quarter of this year, compared to 3.8% in January.

Any further moves substantially north of that 9% figure would be a spanner of industrial proportion in efforts to revive the economy.

Unlike the financial crisis, much of this recovery is going to hinge on confidence: how long it takes for businesses to retrench and stabilise staffing, and the length of time before consumers get back to spending at normal levels. The BoE has taken its best shot at painting a positive picture, but the crystal ball remains extremely hazy.