Press release

16 Jun 2020 London, GB

UK labour market shows further deterioration as economy feels COVID-19 impact – EY ITEM Club comments

The labour market weakened further in May – although it is clear that the impact of the lockdown on jobs has been limited by companies’ ability to furlough workers under the government’s Coronavirus Job Retention Scheme.

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  • Latest data show further job losses in May following the economy’s record contraction of 20.4% month-on-month in April – even though it is clear the impact of COVID-19 on the labour market has been limited by the ability to furlough workers under the government’s Coronavirus Job Retention Scheme
  • Claimant count unemployment increased by a further 528,000 in May to 2.8011 million. This followed a rise of 1.0326 million in April. Combined, claimant count unemployment rose 1.56 million over April/May
  • The weakening labour market finally started to show up in the latest ILO (International Labour Organisation) jobs data. The ILO data show the rise in the number of people employed was just 6,000 in the three months to April, down from 211,000 in the three months to March. The level of employment dipped to 32.991 million in the three months to April from the record high of 33.114 million in the three months to March. Additionally, job vacancies were limited to a record low of 476,000 in the three months to May, down 342,000 from the previous quarter
  • The ILO data surprisingly showed the number of unemployed edged down 8,000 in the three months to April, to 1.336 million, keeping the unemployment rate at 3.9%
  • The ILO data showed a further slowdown in annual earnings growth in April, and pay looks set to continue to be significantly affected over the coming months. Annual average earnings fell 0.9% year-on-year in April, and were up just 1.0% year-on-year in the three months to April. Regular earnings growth was flat year-on-year in April and up just 1.7% year-on-year in the three months to April
  • The increased squeeze on workers’ purchasing power was highlighted by real earnings growth falling 1.7% in April
  • Labour market performance will be crucial to the economy’s recovery in the near term and further out
  • 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) will hopefully help to limit the number of redundancies when the government support ends. Much will also depend on what labour market incentives the government provides once the furlough scheme ends in October
  • The EY ITEM Club’s expectation is that the ILO unemployment rate will increase to around 7.5% in late 2020 before stabilisng and then falling back. This is based on the EY ITEM Club’s 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 weakened further in May – although it is clear that the impact of the lockdown on jobs has been limited by companies’ ability to furlough workers under the government’s Coronavirus Job Retention Scheme.

“Latest Treasury data show that the job retention scheme (which pays 80% of the salaries of employees who are temporarily not in work) now covers 8.9 million workers, costing £19.6 billion so far. A separate scheme for self-employed people covers 2.6 million claims, costing £7.5 billion pounds.

“Claimant count unemployment increased by a further 528,000 in May to 2.8011 million. This was the highest level since 1996. It followed an increase of 1.0326 million in April.

“Additionally, HMRC and ONS Pay as You Earn Real Time Information data indicate that the number of paid employees in May was down 612,000 (2.1%) from March.

“The impact of COVID-19 on the labour market started to show up in the latest ILO jobs data. The ILO data show that the rise in the number of people employed was just 6,000 in the three months to April, down from 211,000 in the three months to March. The level of employment dipped to 32.911 million in the three months to April, down from the record high of 33.114 million in the three months to March. The employment rate dipped to 76.4% in the three months to April from the record high of 76.6% in the three months to March.

“However, the number of unemployed edged down 8,000 in the three months to April, to 1.336 million. The unemployment rate was stable at 3.9% in the three months to April after dipping to this level in the three months to March, down from 4.0% in the three months to February. It is notable that ONS has indicated that furloughed workers will continue to count as employees, while those who claim from the Self-Employment Income Support Scheme will still be classed as self-employed.

“The number of job vacancies fell further to 476,000 in the three months to May, down from 641,000 in the three months to April, 796,000 in the three months to March and 818,000 in the three months to February.”

Annual earnings growth falls, down year-on-year in April, squeezing purchasing power

Howard Archer adds: “Annual earnings saw a further decline in growth in April and they look set to weaken further over the coming months. Furloughed workers are taking only up to 80% of their normal pay.

“The May REC report on jobs reported that ‘Permanent starter salaries fell for the second month running in May, and at the quickest rate since February 2009. Temp pay meanwhile declined at the fastest rate for 11 years. Recruiters often mentioned that weak demand for staff and budget cuts at clients had driven down pay in May.’ Additionally, 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 survey by XpertHR released on 23 April reported that 51% of the 400 organisations that they surveyed said pay deals would be hit by COVID-19, 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 influence.

“Even before the impact on earnings from COVID-19, earnings growth had come well off the highs seen in mid-2019.

“Annual average earnings growth slowed to 1.0% in the three months to April; this was down from 2.3% in the three months to March, 2.9% 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 to July 2009, which had been an 11-year high.

“Annual earnings growth fell 0.9% in April; growth had previously slowed to 1.2% in March from 2.7% in February and 3.1% in January. It peaked at 4.0% in May 2019.

“Annual regular earnings growth (which strips out bonus payments which can be erratic and distort the overall figures) slowed to 1.7% in the three months to April; this was down from 2.7% in the three months to March, 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 flat in April itself; down from 2.4% in March, 2.8% in February and January. It had peaked at 4.0% in June 2019.

“ONS data show that real earnings fell 1.7% year-on-year in April and were down 0.4% year-on-year in the three months to April. Growth had previously slowed to owed 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 0.4% year-on-year in the three months to April from 1.0% in the three months to March,1.3% in the three months to February, and from 1.5% in the three months to January. It peaked at 2.0% in the three months to June 2019. Regular real earnings fell 0.9% year-on-year in April.