Britain should be "ready to redeploy" some form of furlough aid if businesses are told to close in the wake of the new variant, the International Monetary Fund (IMF) has said.
The IMF said fresh waves of the new variant represent a 'major risk' to the economy and suggested a limited version of the multi-billion pound job subsidy scheme should be rolled out if restrictions result in firms being forced to close.
The remarks came as the latest health-check of the UK economy pointed to a 'mild slowdown' in growth in the new year as Plan B restrictions to curb the spread of Omicron take their toll.
It pencilled in GDP growth of 6.8% growth for this year, dropping to 5% in 2022.
The Bank of England has already warned that inflation is forecast to peak 5% next spring, sending the cost of living spiralling further.
On the eve of the Bank’s latest interest rate decision, the IMF report also warned against the dangers of not raising interest rates to keep price pressures under control - though it also acknowledged the risk of taking action too early which might hold back the recovery.
IMF managing director Kristalina Georgieva added that the Brexit effect on the economy is likely to worsen in the new year.
"Trade with the EU has dropped significantly and we expect there will be more impact ahead as the custom checks are going to be introduced in UK in the beginning of next year," she told a virtual news conference.
The IMF said Omicron risked creating further supply chain problems and inflationary pressures - but that "if it or a future outbreak is more virulent this could weigh on confidence and demand".
It added: "In the event of a virulent COVID-19 wave requiring widespread mandated closures, the authorities should be ready to redeploy a subset of the most successful previous exceptional programmes."
The IMF made reference to "a furlough scheme and targeted support to the most vulnerable households and small businesses" in the warning.
Ms Georgieva said: "We do not expect the need to return either to the full lockdowns we have seen or the policy support of the kind that this type of lockdown requires.
"Should there be a need of more restrictive measures especially affecting contact-intensive services, then the policy support will have to be calibrated accordingly.
"What we know is that there has been quite a lot of experience in supporting vulnerable people and businesses. It can be applied then in somewhat different conditions appropriately."
Ms Georgieva said the UK certainly had the "fiscal space" to afford such support if needed.
"I have no doubt that if that becomes a necessity there would be appropriate action," she added.
