Your weekly economic update from the team at FXD Capital


After over 15 months, the UK furlough scheme is starting to take a bow. As of yesterday, government contributions reduce from 80% to 70%, in a staggered approach that will run off by the end of September. In January at its peak, 5.1m workers were furloughed, and the scheme is estimated to have cost the Treasury £66bn in total. With 2.4m workers still in such purgatory, the economy is by no means out of the woods, hence the staggered approach to concluding its life.

The end of furlough will be another significant test to the economy and possibly the next big area of focus after recent inflation obsessions. Aside from the scheme’s cost, there are myriad “known unknowns” that we will have to see how they play out over the coming months.

The first is how much unemployment spikes as the scheme winds down, and employers are obliged to take on more financial encumbrance. The scheme was like being granted a free option from an owner’s perspective: maintain a workforce in suspended animation, ready to ramp up again instantaneously for minimal financial cost. Once the rug is pulled, such benevolence may dissipate, and redundancies will spike up.

There’s also the question of the type of people on furlough: with hospitality sectors essentially opening up again, only small pockets (e.g., cruise ships, nightclubs and stadiums) remain with a substantial impairment to business as usual. It all begs the question as to whether a significant pivot of the workforce has been occurring, whereby bosses have been calling back more “able” workers first. This may pose specific demographic or location-specific issues when the scheme ends, as there will be a focused shock in certain parts of the populace. Unlike, say, a traditional economic shock, where the music stops for everyone simultaneously.

More broadly, the furlough scheme will bring a range of psychological impacts that will implicate business over the next generation. The removal of jeopardy that furlough gave may encourage ambitious expansion plans to entrepreneurs but, conversely, may promote a nanny state mentality from bosses who clamber for its resumption during any times of economic shock. For both owners and workers, the jeopardy of economic retribution acts as a leveller, encouraging performance and financial responsibility. Take that away, and what kind of behaviour emerges?

For furloughed workers, the period will have been an incredibly stressful time. Like a substitute ready on the touchline, tracksuit off, warmed up, constantly waiting for an unknown electronic scoreboard to call them to the fore. Where the government missed a trick during furlough is training – all those who have been temporarily laid off have been mainly left to their initiative to level up during the interval. For some going back to work, so long as their industry has not been structurally impaired, life may get back to normal. But for those in industries with new paradigms, or if they are later on in their career, the work environment has shifted seismically, and they have been ill-prepared.


Bank of England governor Andrew Bailey was relaxed on Thursday in comments on inflation, claiming that the central bank is not “whistling in the wind”. In his annual Mansion House speech, he acknowledged that the BoE might have underestimated the speed of recent rebounds but then resorted to the narrative other central bankers are following in that the changes are transitory and global in nature.


Growth in US manufacturing slowed to its lowest level since January; the ISM’s sector index tracker for June fell to 60.6 from 61.2 in May. Factories are struggling with bottlenecks caused by increased demand, scarce inputs, rising prices and worker shortages. Despite activity slowing, costs are rising at the fastest levels since the 1970s, with the corresponding price index creeping up to 92.1 from 88.

The US is running hot everywhere right now, both figuratively and literally, with the west coast heatwave: House prices in April grew at their fastest pace for over 30 years. Several secondary cities (e.g., Phoenix) in the “move out for the space” bracket lead the way on house price appreciation.

Ahead of non-farm payrolls today, stock markets have been rising ahead of an expected 700,000 new jobs added in June, up from 559,000 in May.


While not exclusively Europe-related, OECD negotiations in Paris resulted in an agreement to harmonise corporation taxes for multinational companies at a floor of 15%. It will be interesting to see how it plays out and whether non-OECD countries ramp up opportunistic overtures to conglomerates, or whether the reputational risks have become too great for overly aggressive tax domiciliation planning.

All the best for the week ahead



Our weekly column is written by Alex Graham, Economic Advisor to FXD Capital. Originally a bank treasurer, Alex’s weekly roundup intends to provide a conversational, top-down view of what is going on in world macroeconomics and how it impacts business on the ground level.

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