Press release

20 Apr 2021 London, GB

UK labour market shows considerable overall resilience as unemployment rate dips to 4.9% – EY ITEM Club comments

The latest labour market data show considerable overall resilience, 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 show considerable overall resilience, indicating that the furlough scheme continues to have a significant impact in stemming job losses
  • There are also mounting signs that increasingly confident businesses are becoming more prepared to take on workers as the restrictions on activity are eased and the prospects brighten for a decent recovery developing from the second quarter
  • The number of people unemployed fell 50,000 in the three months to February, while the unemployment rate dipped to 4.9%. Employment fell a notably reduced 73,000 in the three months to February. However, HMRC and ONS Pay as You Earn Real Time Information data indicate that the number of paid employees in March was down 56,000 from February after rising recently
  • The extension of the furlough scheme to September should continue to contain pressure on the labour market as the recovery becomes established, limiting the number of workers who end up losing their jobs
  • Nevertheless, the EY ITEM Club still expects there to be a modest rise in unemployment when the furlough scheme ends in September, while the unemployment rate could also be pushed up by economically inactive people returning to the labour market and looking for a job
  • Given the resilience of the labour market so far, the extension of the furlough scheme and expected decent recovery developing from Q2, the EY ITEM Club now expects the unemployment rate peak to be limited to under 6% in Q4. The unemployment rate had previously been expected to reach a peak of at least 7.0% – full details to be included in the upcoming Spring Forecast (26/4)
  • Annual average earnings growth maintained its recent higher level, standing at 4.5% in the three months to February for total pay and 4.4% 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 2.5% for both total pay and 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, indicating that the repeated 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.

“Latest ONS data show that the number of workers on full or partial furlough stood at 17% during 22 March – 4 April.

"There are also now mounting signs that businesses are becoming increasingly confident in the UK's economic outlook and are more prepared to take on workers.

“Nevertheless, the EY ITEM Club still expects there to be a modest rise in unemployment when the furlough scheme ends in September, while the unemployment rate could also be pushed up by people previously discouraged from looking for employment returning to the labour market and resuming their job search.

“Given the current resilience of the labour market, the extension of the furlough scheme to September, and the prospect of decent recovery developing from the second quarter, the EY ITEM Club now expects the peak in the unemployment rate to be limited to under 6% in the fourth quarter. Until recently, the EY ITEM Club had forecast that it could get up to 7%.”

Key statistics from today’s data

Howard Archer says: “The Labour Force Survey (LFS) data show that the number of people in employment fell 73,000 in the three months to February to 32.430m. This was essentially half the fall of 147,000 in the three months to January. Employment had been at a record high of 33.073m in the three months to February 2020. The employment rate stood edged up to 75.1% in the three months to February, having dipped to 75.0% in the three months to both January and December from 75.2% in the three months to November and 76.6% in the three months to February 2020.

“Meanwhile, redundancies slowed considerably to 204,000 in the three months to February from 308,000 in the three months to January, 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 fell 50,000 in the three months to February to be at 1.675m, following an increase of just 11,000 in the three months to January. There had previously been substantially larger 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 dip to 4.9% in the three months to February. It had previously edged back 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 4.1% in the three months to June. The unemployment rate stood at 4.0% in the three months to February 2020.

“The inactivity rate rose to 20.9% in the three months to February, which was up 0.2 percentage points on the quarter and 0.7 percentage points on the year.

“The number of job vacancies continued to trend up from a record low in the three months to June: it stood at 607,000 in the three months to March compared to 599,000 in the three months to February and 597,000 in the three months to January. It had dipped as low as 341,000 in the three months to June – which had been the lowest level since the series began in 2001 – from 818,000 in the three months to February 2020. 

“The ONS also reported that total actual weekly hours worked in the UK was 959.9m hours in December 2020 to February 2021. This was a decrease of 20.1m, or 2.1%, from the previous quarter, coinciding with the introduction of further coronavirus lockdown measures, which has stalled the recent recovery in total hours worked.

“HMRC and ONS Pay as You Earn Real Time Information data indicate that the number of paid employees in March was down 56,000 from February after rising in a number of recent months. Compared to the same month last year, it was down 813,000.

“Claimant count unemployment rose 10,100 in February to 2.6730m after a rise of 67,200 in February. Claimant count unemployment had previously risen to a peak of 2.6870m in August from 1.2472m in March 2020.”

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

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

“Annual average earnings growth dipped to 3.9% in February itself from 4.3% in January and 5.4% in December. In contrast, there had been annual falls in earnings growth between April-July 2020. Earnings were up 4.5% in the three months to February.

“Annual regular earnings growth, which strips out bonus payments – which can be erratic and distort the overall figures – rose 4.5% in February itself, up slightly from 4.3% in January and 4.4% in December. There had earlier been marginal annual declines during April-June 2020. Consequently, annual regular earnings growth was up 4.4% in the three months to February.

“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 2.5% for total pay and 2.5% for regular pay.

“Looking ahead, 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.”