Press release

10 Nov 2020 London, GB

UK unemployment rate up to 4.8% and looks set to rise markedly further despite Chancellor’s supportive measures – EY ITEM Club comments

The unemployment rate is now on a marked upward trend, rising to 4.8% in the three months to September as the number of people without jobs increased 243,000.

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Related topics Growth COVID-19
  • The latest labour market report is weaker overall, particularly due to a significant rise in the number of people without jobs and record redundancies – indicating the original October end-date for the furlough scheme had prompted companies to make staffing decisions
  • The unemployment rate is now on a marked upward trend, rising to 4.8% in the three months to September as the number of people without jobs increased 243,000. Employment fell 164,000. Additionally, redundancies reached a record high of 314,000 in the three months to September
  • Pay As You Earn Real Time Information data indicate that the number of paid employees in October was down 33,000 from September, and was down 782,000 from March. However, claimant count unemployment fell by 29,800 in October to 2.6332 million after a fall of 40,200 in September. Claimant count unemployment had previously risen to a peak of 2,7031 million in August from 1.2396 million in March
  • The number of job vacancies rose by a record 146,000 in the three months to October after falling to a record low in the three months to June. There has also been appreciable recovery in total hours worked although they remain low by past norms
  • While the Chancellor’s most recent measures should have some limiting impact on the rise in unemployment, the EY ITEM Club predicts that the upward unemployment trend will still be appreciable given the increased challenges and uncertainties facing the economy, particularly from renewed restrictions due to rising COVID-19 cases
  • The EY ITEM Club suspects that the unemployment rate could reach 7.0% during the first half of 2021, although the peak is both lower and later than had been expected before the extension of the furlough scheme to the end of March
  • Annual average earnings growth moved further into positive territory in September after furlough-influenced declines in April-July. Earnings look set to remain limited with many companies looking to freeze pay, while furloughed workers will see their pay reduced

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

“The latest labour market report is weaker overall, with a significant rise in the number of people without jobs and record redundancies. This suggests that that the original October end-date for the furlough scheme was prompting employers to make decisions about their workforces.

“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. Data from the Treasury show that the scheme has covered 9.6 million workers. According to the Bank of England, businesses reported 6% of employees had been furloughed in October, down from 7% in September, 12% in August, 18% in July and a peak of 36% in April. The ONS reported that 7.7% of staff were fully or partly furloughed during 5-18 October.

“Despite the Chancellor announcing a number of measures before last week to try and protect jobs, it had looked likely that the unemployment rate would rise from October as the furlough scheme was originally scheduled to finish at the end of the month.

“While the Chancellor’s extension of the furlough scheme and other measures should have a significant impact in reducing redundancies, the EY ITEM Club suspects that job losses will still be significant. Many companies who had already made redundancies or made plans to do so before the extension of the furlough scheme may still decide to go ahead due to the challenging conditions and uncertain outlook facing them.

“For similar reasons, a number of companies may enact redundancies over the coming months, regardless of the extended furlough scheme. This is likely to be particularly true of the hospitality and entertainment sectors. Significantly, employers will pay furloughed workers’ national insurance and pension contributions, at a time when some have no revenue.

“The EY ITEM Club predicts that the unemployment rate could rise to 7.0% during the first half of 2021, although the peak is both lower and later than had been expected before the furlough scheme was extended to the end of March. Of course, there is still the chance that there could be appreciable job losses when the furlough scheme ends in March, particularly if the economy is still being affected by some COVID-19-related restrictions. Indeed, the Chancellor has indicated that he will review the furlough scheme in January.”

Key statistics from today’s data

Howard Archer says: “HMRC and ONS Pay as You Earn Real Time Information data indicate that the number of paid employees in October was down 33,000 from September, and was 782,000 lower than in March.

“However, claimant count unemployment fell by 29,800 in October to 2.6332 million after a fall of 40,200 in September. Claimant count unemployment had previously risen to a peak of 2,7031 million in August from 1.2396 million in March.

“There were markedly increased signs of weakness in the Labour Force Survey (LFS) data.

“The LFS data show that the number of people in employment fell 164,000 in the three months to September to 32.507 million. This was up from a fall of 153,000 in the three months to August. Employment had been at a record high of 33.073 million in the three months to February. The employment rate stood at 75.3% in the three months to September, which was down from 75.6% in the three months to August, 75.9% in the three months to May and 76.6% in the three months to February.

“Meanwhile, redundancies reached a record high of 314,000 in the three months to September.

“The number of unemployed people rose 243,000 in the three months to September to be at 1.624 million; this was up from an increase of 138,000 in the three months to August; this caused the unemployment rate to rise to 4.8% in the three months to September, from 4.5% in the three months to August, 4.3% in the three months to July and 4.1% in the three months to June. The unemployment rate stood at 4.0% in the three months to February.

“The ONS has indicated that furloughed workers 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 has also indicated that the unemployment rate has been kept down while employment fell as a number of people had stopped looking for work and are therefore no longer counted as unemployed. This has led to a rise in the inactivity rate.

“The number of job vacancies rose appreciably again after falling to a record low in the three months to June: it was 525,000 in the three months to October, up from 491,000 in the three months to September, 437,000 in the three months to August, 379,000 in the three months to July and 343,000 in the three months to June, which had been the lowest level since the series began in 2001. It had been as high as 818,000 in the three months to February.

“The ONS also reported that between April to June 2020 and July to September 2020, total actual weekly hours worked in the UK saw a record increase of 83.1 million, or 9.9%, to 925.0 million hour. Nevertheless, total hours worked are still at a low level compared to past norms.”

Annual earnings growth further into positive territory in September, although purchasing power still squeezed

Howard Archer continues: “Annual earnings growth moved further into positive territory in September as more workers returned from furlough. Workers who were furloughed took only 80% of their normal pay from March.

“Pay looks set to remain limited. Many companies are looking to freeze pay while workers going on furlough to the end of March will see their pay reduced.

“The Chartered Institute of Personnel and Development (CIPD) reported in August 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%.

“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 rose 2.2% in September itself after a 2.1% increase in August after falls of 0.3% in July, 1.6% in June, 1.2% in May and 1.0% in April; they were up 1.3% year-on-year in the three months to September, having been up just 0.1% year-on-year in the three months to August and suffered a maximum fall of 1.2% in the three months to June.

“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) rose 2.8% in September, after increases of 1.9% in August and 0.9% in July; this followed marginal declines over the previous three months: June (0.2%), May (0.2%) and April (0.1%). Consequently, annual regular earnings growth were up 1.9% in the three months to September; there had been a fall of 0.1% in the three months to June.

“ONS data show that real earnings rose 1.4% year-on-year in September itself after a gain of 1.6% in August; there had previously been declines of 1.4% in July and 2.3% fall in June; they were up 0.5% year-on-year in the three months to September.

“Regular real earnings rose 2.1% year-on-year in September itself and were up 1.2% year-on-year in the three months to September.”