Press release

17 Mar 2020 London, GB

Labour market robust in early 2020 but coronavirus will undoubtedly take a toll

Any news relating to the economy at the start of the year is already looking very dated as coronavirus increasingly affects the economy.

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  • Any news relating to the economy at the start of the year is already looking very dated as coronavirus increasingly affects the economy. It is evident that the labour market was robust before coronavirus started to become a factor. This was despite the fact that GDP had stagnated in the fourth quarter of 2019 and was also only flat month-on-month in January. Several surveys had indicated that companies had become more prepared to employ in the aftermath of the General Election due to reduced uncertainties.
  • Employment was up 184,000 in the three months to January to reach a new record high of 32.985 million. Reinforcing the impressive performance, the employment was stable at a record 76.5% and vacancies rose for a third month running. This was lifted by record high female employment.
  • Despite the strong rise in employment, unemployment rose 63,000, which caused the unemployment rate to edged up to 3.9%. This reflected the fact that the inactivity rate fell to a record low of 20.4%.
  • Despite the healthy employment growth, regular earnings growth slowed further from the peak levels seen around mid-2019, although there was a slight pick-up in total earning growth. Regular earnings growth dipped to 3.1%, the lowest since the three months to September 2018. Annual earnings growth was also 3.1% in the three months to January, but this was up from a low of 2.9% in the three months to December. Total earnings growth has been affected by bonus payments.
  • It looks inevitable that the labour market will suffer as the economy takes a major hit from coronavirus. It is already evident that workers in the travel, hospitality, leisure, and retail sectors will be particularly affected.
  • Just how badly the labour market will be affected over the coming months is very hard to judge, just as it is at this stage to try and gauge just how substantial a knock the economy is going to take as a result. Government measures (with more set to come) should help to limit job losses, but they will not stop them.
  • Obviously the deeper and longer the coronavirus impact is on the UK economy, the more the labour market will suffer. Many companies may try to hold on to their workers in the belief that however much the economy suffers over the coming months, the effect will be temporary and the economy will hopefully bounce back once the coronavirus impact fades.
  • However, the deeper and longer the coronavirus impact on the UK economy is, the harder it will be for many companies to hold on to workers. It is also inevitable that companies will adopt a more cautious approach to taking on any new workers until coronavirus has run its course.
  • It looks probable that the highly challenging environment facing companies due to coronavirus will have a downward impact on earnings growth as they look to contain their costs.

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

“The latest jobs data indicate that the UK labour market was robust at the start of 2020 before coronavirus started to become a factor. This was despite the fact that GDP had stagnated in the fourth quarter of 2019 and was also only flat month-on-month in January. Several surveys had indicated that companies had become more prepared to employ in the aftermath of the election due to reduced uncertainties.

“Labour market strength has been good news for UK consumers, but has been bad news for UK productivity given lacklustre growth. The labour market has seemingly been helped by businesses preferring to employ rather than commit to investment, given current heightened uncertainties and the fact that employment is relatively low cost and easier to halt or reverse if business subsequently stalls.

“The number employed rose 184,000 in the three months to January to reach a new record high of 32.985 million. This followed gains of 180,000 in the three months to December and 208,000 in the three months to November.

“The employment rate was stable at a record high of 76.5% in the three months to January after rising to this level in the three months to December, from 76.3% in the three months to November, 76.2% in the three months to October and 76.0% in the three months to September.

“The employment rate for women was a record 72.5%, up 0.5 percentage point on the quarter and up 0.7 percentage point on the year. The employment rate for men was 80.4%.

“Additionally, the number of vacancies rose for a third month running to 817,000 in the three months to February (the highest since the three months to July 2019). It had previously risen to 811,000 in the three months to January from 804,000 in the three months to December and 798,000 (the lowest in more than two years) in the three months to November.

“Despite the substantial rise in employment, the number of unemployed rose 63,000 in the three months to January to be at 1.343 million compared to the low of 1.290 million in the three months to December; this caused the unemployment rate to rise to 3.9% from 3.8% (which had been the equal lowest level since the end of 1974). This followed unemployment dips of 16,000 in the three months to December, 7,000 in the three months to November, 13,000 in the three months to October and 23,000 in the three months to September. There had earlier been an increase of 22,000 in the three months to August (when the level stood at 1.314 million).

“The fact that unemployment rose 63,000 in the three months to January even though there had been a 184,000 increase in employment reflected the fact that the inactivity rate fell to a record low of 20.4%.

Earnings growth remained well below peak levels seen around mid-2019

“Annual earnings growth rose back up to 3.1% in the three months to January after dipping to 2.9% in the three months to December, which had been the lowest level since the three months to August 2018. It had come down from 3.2% in the three months to both November and October, and a peak of 3.9% in the three months July, which had been an 11-year high. Earnings growth had previously climbed to 3.9% in the three months to July (the highest since mid-2008) from 2.4% in the three months to June 2018.

“Annual earnings growth rose to 3.1% in January itself after falling to 2.8% in December from 3.4% in November. It had earlier been 2.4% in October and 3.6% in September. It peaked at 4.0% in May 2019, which was up from just 2.4% in June 2018.

“The recent yo-yoing in annual earnings growth has been significantly influenced by swings in bonus payments (which can be highly erratic).

Underlying earnings growth weakened further

“Annual regular earnings growth (which strips out bonus payments) slowed to 3.1% in the three months to January, which is the slowest rate since the three months to August 2018; it had come previously come down to 3.2% in the three months to December from 3.4% in the three months to November, 3.5% in the three months to October and an 11-year high of 3.9% in both the three months to July and June. It had previously risen to the peak of 3.9% in the three months to July/June from 2.7% in the three months to June 2018.

“Regular earnings growth was down to 2.8% in January itself (the lowest since June 2018), having been 3.2% in December, November and October. It had peaked at 4.0% in June 2019.

“ONS data show that real earnings growth edged up to 1.5% in the three months to January from 1.4% in the three months to December – which had been the lowest since the three-month to April 2018. It had come down from 1.6% in the three months to November, 1.9% in the three months to September and a peak of 2.0% in the three months to July (the best since from September 2015). It had earlier climbed to July’s peak from just 0.1% in the three months to June 2018. 

“Regular real earnings growth dipped to 1.5% in the three months to January, the lowest since the three months to April 2019. This was down from 1.7% in the three months to December, 1.8% in the three months to November and a peak of 2.0% in the three months to June. It had climbed to the peak of 2.0% from just 0.3% in mid-2018.

“We had suspected that earnings growth would likely stabilise around 3.2% over the coming months. However, it looks very likely that earnings growth will come under downward pressure at least temporarily from companies looking to limit their costs as coronavirus takes a toll on their business.”