Rishi Sunak is to extend the furlough scheme for an additional month and has said the government will hold a budget on 3 March to outline the next stage of its response to the coronavirus pandemic. The chancellor said the flagship wage subsidy scheme would be extended until the end of April, in the latest rapid policy change designed to cushion the growing economic blow from the second Covid wave. Against a backdrop of rising coronavirus cases and the return of tougher government restrictions that are expected to remain in place well into the new year, the Treasury said it would continue to contribute 80% towards workers’ wages to give businesses and employees certainty. The chancellor had planned to hold a review of the furlough scheme in January to assess whether the economic outlook had improved enough for companies to contribute to it. Employers would have needed to make plans for February from as early as Friday, because of a requirement for firms making more than 100 redundancies to hold consultation proceedings for at least 45 days. But the chancellor has now ditched the review. Sunak said: “We know the premium businesses place on certainty, so it is right that we enable them to plan ahead regardless of the path the virus takes, which is why we’re providing certainty and clarity by extending this support, as well as implementing our ‘plan for jobs’.” Earlier on Thursday the Bank of England said the economy would shrink by more than expected in the final three months of 2020, and it kept interest rates at the lowest levels in its 326-year history to maintain support for the economy. Threadneedle Street said UK growth would remain weak in the first three months of 2021, at a time when Brexit could spark severe disruption at ports and push up the price of consumer goods. Aiming to help firms navigate mounting economic disruption, Sunak confirmed that the Treasury would also extend government-guaranteed business loan schemes until the end of March. There are plans to hold a spring budget on 3 March when the Treasury said it would “deliver the next phase of the plan to tackle the virus and protect jobs”. The second wave of the Covid pandemic has led the number of workers on furlough to more than double since the end of October, with about 5 million people – 15.5% of the UK workforce – receiving wage subsidies from the state at the end of last month, according to the Office for National Statistics. As many as 2.4m jobs were still furloughed when the scheme was originally due to close on 31 October, down from a peak of 8.9m in May during the first lockdown, in a reflection of the widespread job losses that could have been triggered by its closure. Sunak had planned to launch a short-time working scheme in November, offering less support than furlough, despite repeat warnings from business chiefs, city mayors and Labour that failure to change tack would cause mass unemployment. The flagship wage subsidy plan was then extended with only five hours to go before it was due to end, coinciding with Boris Johnson’s announcement for a second national lockdown in England. The furlough scheme has formed the backbone of the government’s £280bn support measures during 2020 as the pandemic plunged Britain’s economy into the deepest recession for more than 300 years. The government’s budget deficit – the gap between spending and income from taxes – is expected to hit £394bn this year, more than double the amount borrowed during the 2008 financial crisis. Sunak has laid down a marker that he ready to take “hard choices” at the budget to cut spending or increase taxes in response, after reimposing austerity-era pay freezes for public sector workers and cutting the international aid budget in last month’s spending review. In an interview with the Spectator magazine on Thursday, he said high levels of borrowing would be brought to an end. “It is clearly not sustainable to borrow at these levels. I don’t think morally, economically or politically it would be right,” he said. Millions of workers have fallen through the cracks of the support scheme, many of them self-employed, because they do not meet eligibility rules or have fallen out of work. Redundancies in the UK are rising at the fastest rate on record, hitting 370,000 in the three months to October. Business groups and union leaders have said further action will be needed to help people losing their jobs and having to rely on universal credit, which is due to be cut from April. Anneliese Dodds, the shadow chancellor, said Sunak had once again waited until the 11th hour to extend furlough. “Rishi Sunak’s irresponsible, last-minute decision-making has left the UK with the worst recession of any major economy,” she said.