Press release

19 May 2020 London, GB

UK labour market shows marked deterioration in April, EY ITEM Club comments

The labour market deteriorated sharply in April – although it is clear that the impact has been significantly limited by companies’ ability to furlough workers under the Government’s Coronavirus Job Retention Scheme.

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  • Latest data shows a significant impact on jobs in April from the economic impact of the lockdown imposed on 23 March. The impact has however been limited by companies’ ability to furlough workers under the Government’s Coronavirus Job Retention Scheme
  • Claimant count unemployment surged 856,500 in April to 2.097 million
  • Additionally, HMRC and ONS data indicate that the number of paid employees in April fell 1.6% compared to March and were down 1.2% year-on-year at 29.0 million
  • However, the latest ILO jobs data continued to show resilience – although this covers a three-month period through to March and only included one week of the lockdown period
  • The ILO data showed employment rising 211,000 in the three months to March to reach a new record high, and the unemployment rate dipping to 3.9%
  • The main sign of a weakening labour market in the ILO data was the sharp drop in job vacancies in April
  • The ILO data also showed a slowdown in annual earnings growth in March. Earnings look set to be severely impacted over the coming months
  • The extension of the furlough scheme to the end of October, with flexibility incorporated from August when furloughed workers will be able to work part-time, supports hopes that there will not be a sharp rise in the number of employees permanently losing their jobs when the Government support ends – as it gives the economy and businesses more time to recover
  • The EY ITEM Club’s expectation is that the ILO unemployment rate will get up to around 7% in the third quarter before stabilising and then will start to fall back. This is based on our assumption that the economy will contract around 15% quarter-on-quarter in the second quarter and by 8.0% over 2020 as a whole

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

The labour market deteriorated sharply in April – although it is clear that the impact  has been significantly limited by companies’ ability to furlough workers under the Government’s Coronavirus Job Retention Scheme.

Claimant count unemployment surged 856,500 in April to 2.097 million. This was the highest level since 1996.

Early estimates on employment using Pay as You Earn Real Time Information shows that the number of paid employees in April fell 1.6% compared to March and was down 1.2% year-on-year at 29.0 million.

However, the ILO data shows that the labour market was robust over the three months to March. This was despite lacklustre economic activity over early 2020.

It is also notable that the ONS has indicated that furloughed workers will continue to count as employees in its data, while those who claim from the Self-Employment Income Support Scheme will still be classed as self-employed.

The number of employed rose by 211,000 in the three months to March to reach a new record high of 33.114 million. The number of employed had previously risen 172,000 in the three months to February and 184,000 in the three months to January. The employment rate remained at a record high of 76.6% in the three months to March.

The number of unemployed rose 58,000 in the three months to March to be at 1.348 million; the unemployment rate dipped back to 3.9% in the three months to March from 3.9% in the three months to February.

The fact that unemployment rose 58,000 in the three months to March – even though there had been a 211,000 increase in employment – reflected the decline in the inactivity rate to a record low of 20.2%.

The number of job vacancies fell sharply to 637,000 in the three months to April from 795,000 in the three months to March and 817,000 in the three months to February.

Earnings growth falls markedly

Earnings saw a marked weakening in growth in March and they look set to be significantly impacted over the coming months.

It is notable that the IHS Markit Household Finance survey for May reported that “incomes from employment fell drastically and at an accelerated rate during May.” Overall, the decline in incomes was the sharpest ever seen since data collection began in February 2009.

A CIPD survey carried out in April indicated that more than half of private sector employers, and 42% of all employers, were already planning to freeze pay, with 15% expecting pay cuts and 29% expecting to cut bonuses. A survey by XpertHR released on 23 April reported that 51% of the 400 organisations that they surveyed said pay deals would be hit by the coronavirus crisis, either via a freeze or by postponing the annual pay review until later in the year. A further 33% were unsure what the impact would be and only 16% said there would be no impact.

Even before the downward impact on earnings from the coronavirus hit to the labour market, earnings growth had come off the highs seen in mid-2019.

Annual average earnings growth slowed to 2.4% in the three months to March; this was down from 2.8% in the three months to February and 3.1% in the three months to January. It has come down from a peak of 3.9% in the three months July 2009, which had been an 11-year high.

Annual earnings growth slowed sharply to 1.5% in March itself from 2.5% in February and 3.1% in January. It peaked at 4.0% in May 2019.

Annual regular earnings growth (which strips out bonus payments and can be erratic and distort the overall figures) slowed to 2.7% in the three months to March; this was down from 2.9% in the three months to February and 3.1% in the three months to January. It has come down from an 11-year high of 3.9% in both the three months to July and June 2019.

Annual regular earnings growth was 2.4% in March itself; down from 2.8% in February and January. It had peaked at 4.0% in June 2019.

ONS data shows that real earnings growth slowed to 0.7% in the three months to March from 1.2% in the three months to February and 1.5% in the three months to January. It peaked at 2.0% in the three months to June 2019.

Regular real earnings growth slowed to 1.0% in the three months to March from 1.3% in the three months to February from 1.5% in the three months to January. It peaked at 2.0% in the three months to June 2019.