Press release

15 Dec 2020 London, GB

UK unemployment rate up to 4.9% and looks set to rise further despite furlough scheme extension – EY ITEM Club comments

The latest labour market report is weaker overall but by less than expected, suggesting that the extensions of the furlough scheme (to the end of November and then the end of March) started to have some limiting impact on job losses.

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Related topics COVID-19 Growth
  • The latest labour market report is weaker overall but by less than expected, suggesting that the extensions of the furlough scheme (to the end of November and then the end of March) started to have some limiting impact on job losses. The labour market was also likely helped by the economy’s bounce back in Q3 when GDP rebounded 15.5% quarter-on-quarter after the 19.8% quarter-on-quarter Q2 contraction.
  • There was still, however, a clear decline in the latest labour market data with redundancies climbing to a record high of 370,000 in the three months to October. The number of unemployed people rose by 241,000, although the unemployment rate rose less than expected to 4.9%. Employment fell 144,000. Overall, the latest figures suggest that the original October end-date for the furlough scheme had already prompted some companies to make staffing decisions before the March extension was announced.
  • Pay As You Earn Real Time Information data indicate that the number of paid employees in November was down 28,000 from October, and were down 781,000 over the past year. Claimant count unemployment rose by 64,300 in November to 2.6632 million.
  • While the Government’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.
  • The EY ITEM Club suspects that the unemployment rate could reach 7.0% during the first half of 2021, although the peak is forecast to be both lower and later than had been expected before the extension of the furlough scheme.
  • Should there be no trade deal between the UK and the EU, the EY ITEM Club suspects that the unemployment rate could reach 8.5% rather than the 7.0% peak rate currently forecast.
  • Annual average earnings growth moved markedly further into positive territory in October after furlough-influenced declines in April-July. Earnings look set to remain limited with many companies looking to freeze pay, while newly 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, but the weakness is less than feared. This suggests the extensions of the furlough scheme (firstly to the end of November and then to the end of March) started to have some limiting impact on job losses. The labour market was also likely helped by the economy’s bounce back in the third quarter when GDP rebounded 15.5% quarter-on-quarter after the 19.8% quarter-on-quarter second quarter contraction.

“Nevertheless, the fact that the data were weaker overall suggests that the original October end-date for the furlough scheme may have already prompted some companies to make staffing decisions before the March extension was announced.

“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.

“While the 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.  

“This is likely to be particularly true of the hospitality and entertainment sectors. Significantly, employers will be required to pay furloughed workers’ national insurance and pension contributions, at a time when some have no revenue.

“Latest ONS data show that the number of workers on full or partial furlough rose to 15.1% during 2-15 November, the highest level since late August.

“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. 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.

“Should there be no trade deal between the UK and the EU, the EY ITEM Club suspects that the unemployment rate could rise markedly higher than the 7.0% peak rate currently forecast. Under a ‘no deal’ scenario, the unemployment rate could reach 8.5% as the economy is affected and business caution is magnified.”

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 November was down 28,000 from October, and was 781,000 over the past year.

“Claimant count unemployment rose by 64,400 in November to 2.6632 million after a fall of 64,100 in October. Claimant count unemployment had previously risen to a peak of 2.7031 million in August from 1.2396 million in March.

“Despite this, there were increased signs of weakness in the Labour Force Survey (LFS) data.

“The LFS data show that the number of people in employment fell 144,000 in the three months to October to 32.522 million. This was down from a fall of 164,000 in the three months to September. Employment had been at a record high of 33.073 million in the three months to February. The employment rate stood at 75.2% in the three months to October, which was down from 75.3% in the three months to September, 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 increased to a record high of 370,000 in the three months to October (there were 314,000 redundancies in the three months to September).

“The number of unemployed people rose 214,000 in the three months to October to be at 1.692 million; this was similar to the increase of 243,000 in the three months to September while there had been a rise of 138,000 in the three months to August. This caused the unemployment rate to rise to 4.9% in the three months to October (the highest since mid-2016) from 4.8% in the three months to September, 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 number of job vacancies rose further after falling to a record low in the three months to June: it was up to 547,000 in the three months to November from 529,000 in the three months to October, 494,000 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 May to July 2020 and August to October 2020, total actual weekly hours worked in the UK saw a record increase of 104.9 million, or 12.3%, to 960.0 million hours. Nevertheless, total hours worked are still at a low level compared to past norms.”

Annual earnings growth further into positive territory in October although pay growth likely to be limited going forward

Howard Archer continues: “Annual earnings growth moved further into positive territory in October as more workers returned from furlough, although 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.

“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 3.5% in October itself after increases of 2.5% in September and 1.9% in August. This followed falls of 0.2% in July, 1.5% in June, 1.2% in May and 1.0% in April. Earnings were up 2.7% year-on-year in the three months to October, having been up 1.5% in the three months to September and 0.1% in the three months to August. They had seen their peak fall of 1.2% year-on-year 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 3.5% in October itself, after increases of 2.9% in September, 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 was up 2.8% in the three months to October; there had been a fall of 0.1% in the three months to June.

“ONS data show that real earnings rose 2.6% year-on-year in October itself after a gain of 1.8% in September and 1.4% in August. There had previously been declines of 1.2% in July and 2.3% in June; they were up 0.5% year-on-year in the three months to September.

“Regular real earnings rose 2.7% year-on-year in October itself and were up 2.1% year-on-year in the three months to October.”