- The latest labour market data show overall weakening despite the ILO unemployment rate remaining at 3.9%
- The jobs market is under pressure with a number of redundancies announced so far in August, as there were in July, particularly in the retail sector. In addition, July purchasing managers’ surveys reported sharper overall falls in employment across the services, manufacturing and construction sectors
- The impact on the labour market has been limited by companies’ ability to furlough workers. However, the Government’s Coronavirus Job Retention Scheme has started to be tapered and will end in October. This seems to be increasingly influencing companies’ employment decisions
- The ILO data showed a further weakening in annual earnings in June influenced by the furlough effect and pay will be affected over the coming months. Annual average earnings fell 1.5% year-on-year in June itself, and were down 1.2% year-on-year in the three months to June. The increased squeeze on workers’ purchasing power was highlighted by real earnings growth falling 2.2% year-on-year in June itself and being down 2.0% year-on-year in the three months to June
- Earnings look set to remain under pressure over the coming months. Many companies are looking to freeze pay
- The EY ITEM Club says that is critical, both for the economy’s near-term recovery prospects and for limiting the long-term impact of the pandemic, that as many jobs can be saved as possible. There is concern that unemployment will rise once the furlough scheme ends in October
- The EY ITEM Club suspects that the Chancellor will be considering further steps to support the labour market in the Autumn Budget
- The EY ITEM Club expects that the ILO unemployment rate will get up to around 9.0% in late-2020/early-2021 before stabilising and then starting to fall back. However, there is a risk that unemployment will rise more than this
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The latest labour market data show overall weakening. The pandemic’s impact on the labour market has been substantially limited by companies’ ability to furlough workers under the government’s Coronavirus Job Retention Scheme. Latest data from the Treasury show that the job retention scheme has covered 9.4 million workers. However, the Bank of England estimates that around 4 million of those have now returned to work.
“A number of redundancies have been announced in July and August so far across a number of sectors, and particularly in the retail sector. It is also notable that the July purchasing managers’ surveys reported sharper overall falls in employment across the services, manufacturing and construction sectors.
“A July survey by Make UK revealed that 46% of manufacturers expect to make redundancies over the next six months, up from 25% in May. Additionally, a survey by the Chartered Institute of Personnel and Development (CIPD) released this week found that 33% of companies planned to make redundancies over July to September. While there was also an increase in the number of companies planning to take on workers, the net employment balance was the weakest since the survey took its current form in 2013.
“Claimant count unemployment rose 94,400 in July to 2.6881 million. There had previously been a drop of 68,500 in June (to 2.6308 million) following large increases in May (566,400) and, especially, April (852,900). Consequently, claimant count unemployment was up 1.4485 million (115.2%) since March when it stood at 1.2396 million.
“Additionally, HMRC and ONS Pay as You Earn Real Time Information data indicate that the number of paid employees in July was up 114,000 from June at 28.3 million and was also up 730,000 from March.
“Labour market weakness is now increasingly showing up in the ILO jobs data which had previously continued to show resilience. The ILO data show that the number employed fell 220,000 in the three months to June, which was the largest three-monthly decline since the three months to July 2009. This took the number employed down to 32.924 million from a record high of 33.114 million in the three months to March. The number employed had previously fallen 126,000 in the three months to May after rising 6,000 in the three months to April and 211,000 in the three months to March.
“The employment rate was stable at 76.4% in the three months to June, down from a record high of 76.6% in the three months to March.
“The number of unemployed fell 10,000 in the three months to June to be at 1.388 million; the unemployment rate remained at 3.9%. 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 ONS indicated that the unemployment rate stayed at 3.9% while employment fell as a number of people had given up looking for work and are therefore no longer counted as unemployed. Indeed, the number of economically inactive people rose by 82,000 in the three months to June, taking the inactivity rate up to 20.4% from 20.2% in the three months to March.
“The number of job vacancies rose to 370,000 in the three months to July after falling to 333,000 in the three months to June, which had been the lowest level since the series began in 2001 and down from 476,000 in the three months to May, 642,000 in the three months to April and 818,000 in the three months to February.
“The ONS also reported that between January to March 2020 and April to June 2020, total actual weekly hours worked in the UK decreased by a record 191.3 million, or 18.4%, to 849.3 million hours. This was the largest quarterly decrease since estimates began in 1971, with total hours dropping to its lowest level since September to November 1994.”
Annual earnings growth falls, down year-on-year in June squeezing purchasing power
Howard Archer continues: “Annual earnings saw a further weakening in June and they look set to remain under pressure over the coming months. Many workers who were furloughed took only 80% of their normal pay from March. Looking ahead, many companies are looking to freeze or cut pay, and to reduce bonuses.
“For example, a survey by the Chartered Institute of Personnel and Development (CIPD) released in August reported that two-fifths of private sector employers planned to freeze pay for the next 12 months. The median expectation of pay growth was just 1%. Additionally, XpertHR released in late in July reported that 16% of pay deals in the three months to the end of June offered no increase in wages, which was up from 15% in the three months to May and almost double the proportion in the three months to April.
“Even before the downward impact on earnings from the pandemic, earnings growth had come well off the highs seen in mid-2019.
“Annual average earnings were down 1.2% in the three months to June; this followed a drop of 0.3% in the three months to May which was down from growth of 1.0% in the three months to April, 2.3% in the three months to March and 3.1% in the three months to January. It has come down from a peak of 3.9% in the three months July 2019, which had been an 11-year high.
“Annual earnings fell 1.5% in June itself after drops of 1.2% in May and 1.0% 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 earnings figures are also being pulled down at the moment by reduced bonus payments compared to a year ago.
“Annual regular earnings growth (which strips out bonus payments, which can be erratic and distort the overall figures) turned negative in the three months to June, being down by 0.2%. Growth had previously slowed to 0.7% in the three months to May from 1.7% in the three months to April, 2.7% in the three months to March 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.”
Howard Archer adds: “Annual regular earnings fell 0.3% in June itself, after edging down 0.2% in May and 0.1% in April; this is down from growth of 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 2.2% year-on-year in June itself and were down 2.0% year-on-year in the three months to June. This contrasts with growth of 1.5% in the three months to January. Growth peaked at 2.0% in the three months to June 2019.
“Regular real earnings fell 1.1% year-on-year in June itself and was down 1.0% year-on-year in the three months to June.”