Press release

23 Mar 2021 London, GB

UK labour market showing considerable overall resilience as unemployment rate dips to 5.0% – EY ITEM Club comments

The latest labour market data are somewhat mixed but show considerable resilience overall, indicating that the furlough scheme continues to have a significant impact in stemming job losses.

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Related topics Growth COVID-19
  • The latest labour market data are somewhat mixed but show considerable resilience overall, indicating that the furlough scheme continues to have a significant impact in stemming job losses.
  • The number of unemployed people rose by just 11,000 in the three months to January, while the unemployment rate edged back to 5.0%. However, this was due to the number of economically inactive people rising by 136,000. Employment fell 147,000 in the three months to January. However, HMRC and ONS Pay as You Earn Real Time Information data indicate that the number of paid employees in February was up 68,000 from January.
  • The extension of the furlough scheme to September should continue to contain pressure on the labour market until the economic recovery is well-established, helping to limit the number of redundancies.
  • Given the resilience of the labour market so far, the extension of the furlough scheme to September, and the expected decent recovery developing from Q2 2021, the EY ITEM Club now expects the unemployment rate peak to be limited to 6.0% in Q4 2021. It had previously been expected that the unemployment rate would reach a peak of at least 7.0%.
  • Annual average earnings growth maintained its recent higher level, standing at 4.8% in the three months to January for total pay and 4.2% for regular pay. However, the ONS has indicated that this is influenced by the fall in the number and proportion of lower paid jobs during the pandemic and that there is underlying wage growth of around 3% for total pay and around 2.5% for regular pay.

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

“The latest labour market data are somewhat mixed but show considerable resilience overall. This indicates that the extensions of the furlough scheme are having a significant impact in limiting job losses. The labour market would likely have come under appreciable pressure in the final quarter of 2020 and the start of 2021 from increased restrictions on activity, notably the latest lockdowns.

“Latest ONS data show that the number of workers on full or partial furlough stood at 19% during 22 February - 7 March.

“The EY ITEM Club had been expecting the unemployment rate to reach a peak of 7.0% around Q3 2021. However, the current ongoing resilience of the labour market, the extension of the furlough scheme to September, and the prospect of decent recovery developing from the second quarter means that the peak in the unemployment rate is expected to be limited to 6.0% in the fourth quarter this year.”

Key statistics from today’s data

Howard Archer says: “The Labour Force Survey (LFS) data show that the number of people in employment fell 147,000 in the three months to January to 32.374m. The fall in employment had previously picked back up to 114,000 in the three months to December after slowing to 88,000 in the three months to November. This was down from 144,000 in the three months to October and 164,000 in the three months to September. Employment had been at a record high of 33.073m in the three months to February 2020. The employment rate stood at 75.0% in the three months to January, which was the same as in the three months to December. This was down from 75.2% in the three months to November, 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 2020.

“Meanwhile, redundancies slowed to 308,000 in the three months to January from 343,000 in the three months to December and a record high of 395,000 in the three months to November. 

“The number of unemployed people rose 11,000 in the three months to January to be at 1.703m. This was substantially less than the increases of 121,000 in the three months to December, 202,000 in the three months to November, 241,000 in the three months to October and 243,000 in the three months to September. This caused the unemployment rate to edge back down to 5.0% in the three months to January after rising to 5.1% in the three months to December – the highest since March 2016 – from 5.0% in the three months to November. November’s level was up from 4.9% in the three months to October, 4.8% in the three months to September, 4.5% in the three months to August, and 4.1% in the three months to June. The unemployment rate stood at 4.0% in the three months to February 2020.

“The fact that the number of employed fell 147,000 in the three months to January yet the number of unemployed only rose 11,000 reflected the fact that the number of inactive people rose by 136,000.

“The number of job vacancies was little changed after trending up in recent months from a record low in the three months to June: it stood at 601,000 in the three months to February after rising to 604,000 in the three months to January. It had been 590,000 in the three months to December 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 2020. 

“The ONS also reported that between August to October 2020 and November 2020 to January 2021, total actual weekly hours worked in the UK saw an increase of 8.0m, or 0.8%, to 968.0m hours.

“HMRC and ONS Pay as You Earn Real Time Information data indicate that the number of paid employees in February was up 68,000 from January, but was down 693,000 since February 2020.

“Claimant count unemployment increased 86,500 in February to 2.6822m after a fall of 20,800 in January. Claimant count unemployment had previously risen to a peak of 2.7031m in August from 1.2396 million in March.”

Annual earnings growth eased back but still elevated in January; pay growth likely to be limited going forward

Howard Archer continues: “Annual earnings growth softened in January itself but was still at a relatively elevated level.

“Annual average earnings dipped to 4.4% in January itself after rising to 5.4% in December. This was up from 4.8% in November and 2.0% in August, and followed falls of 0.2% in July, 1.5% in June, 1.2% in May and 1.0% in April. Earnings were up 4.8% in the three months to January.

“Annual regular earnings growth – which strips out bonus payments, which can be erratic and distort the overall figures – rose 4.1% in January itself, down from 4.4% in December. It had previously risen from 4.2% in November 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 4.2% in the three months to January.

“Significantly, the ONS has reported that current average pay growth rates are being pushed upwards by a fall in the number and proportion of lower paid jobs compared with before the pandemic. It is estimated that underlying wage growth – if the effect of this change in profile of jobs is removed – is likely to be around 3% for total pay and 2.5% for regular pay.

“The EY ITEM Club suspects that earnings will be limited over the coming months by many companies looking to freeze pay or hold down pay increases to limit their costs following their very challenging past year.”