By Ian McConnell

BANK of England deputy governor Sir Dave Ramsden has warned of the dangers of “permanent scarring” in the UK labour market because of the coronavirus crisis and flagged the risk of unemployment staying “higher for longer”.

He flagged the danger of a mismatch between jobs and skills, like that seen in the wake of the 1980s recession, in an interview with Andrew Milligan published yesterday by the Society of Professional Economists.

Sir Dave highlighted the Bank of England’s central forecast that UK unemployment would, on the International Labour Organisation measure, pick up “really sharply” through this year to 2.5 million, a rate of 7.5%, nearly double the levels before the coronavirus pandemic hit.

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He added: “That’s a lot for those people to contend with but also the wider uncertainty. And we only have unemployment falling back gradually from that level. It remains elevated through the forecast period.”

Highlighting his belief that the risks were to the downside, and flagging the scale of the uncertainty, Sir Dave said: “For me, when looking at unemployment, it’s more likely that unemployment will end up peaking higher than 7.5%, than lower, and it will end up coming down more gradually.”

He cited the question of how “health outcomes” play out in the context of these comments, and weighed the reactions of households and businesses to these.

Sir Dave said: “I think the risks are they will be more cautious rather than less.”

He added: “For me the risk is that unemployment stays higher for longer and alongside that you might get more semi-permanent or permanent scarring effects from that.”

Sir Dave noted these had been seen in the labour market before and, citing the experience after the 1980s recession, he flagged the risk of “skills mismatch”.

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He said: “People are going to lose their jobs. Some sectors are going to shrink, while others may see more opportunities, and so the chances of people getting re-employed will obviously be increased if they have got the skills needed for these new sectors.”

Sir Dave also flagged further uncertainty for the UK arising from Brexit. He said: “We have also for the UK got Brexit to contend with. There is still uncertainty there, even though we are now just over three months from the end of the transition period.”

He noted “more targeted measures" on jobs unveiled by Chancellor Rishi Sunak last week. The job support scheme is much smaller in scale than the current job retention scheme, and people must work at least one-third of their normal hours to be eligible for the new programme.

Sir Dave said: “There has been a lively debate about where next with the job retention scheme.”