Press release

18 May 2021 London, GB

UK labour market robust as unemployment rate dips to 4.8% – EY ITEM Club comments

The latest labour market data are robust, indicating that a combination of the furlough scheme and improved business confidence is providing support to UK jobs. Overall, the data were significantly better than expected.

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Related topics Growth COVID-19
  • The latest labour market data are robust, indicating that a combination of the furlough scheme and improved business confidence is providing support to UK jobs. Overall, the data were significantly better than expected
  • In addition to the furlough scheme’s extension to September, increasingly confident businesses are becoming more prepared to take on workers as restrictions are eased and prospects for a decent recovery developing from Q2 brighten. HMRC and ONS Pay as You Earn Real Time Information data indicate that the number of paid employees in April was up 97,000 from March and points to a pick-up in hiring
  • The number of unemployed people fell 121,000 in the three months to March, while the unemployment rate dipped to 4.8%. Employment rose by 84,000 in the three months to March
  • Nevertheless, the EY ITEM Club still expects there to be a modest rise in unemployment when the furlough scheme ends, while the unemployment rate could also be pushed up by previously discouraged people returning to the labour market and looking for a job
  • The EY ITEM Club now expects the unemployment rate peak to be limited to around 5.7% in Q4. Furthermore, there is a real and growing possibility that the peak unemployment rate may not exceed 5.5%
  • Annual average earnings growth maintained its recent higher level, standing at 4.0% in the three months to March for total pay and 4.6% 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 show improvement and are robust overall, indicating that a combination of the furlough scheme and improved business confidence is providing support to jobs.

“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 at the start of 2021 from the renewed lockdown, which resulted in the economy contracting by 1.5% quarter-on-quarter.

“Latest ONS data show that the proportion of workers on full or partial furlough stood at 11% during 19 April - 2 May, down from a recent peak of 17%.

“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 previously discouraged people returning to the labour market and looking for a job.

“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 – supported by the rapid rolling out of the COVID-19 vaccines – the EY ITEM Club expects the peak in the unemployment rate to be limited to 5.7%. Furthermore, there is a real and growing possibility that the peak unemployment rate may not exceed 5.5%.”

Key statistics from today’s data

Howard Archer says: “The Labour Force Survey (LFS) data show that the number of people in employment rose 84,000 in the three months to March to 32.476 million. This was a marked improvement on falls of 73,000 in the three months to February and 147,000 in the three months to January. Employment had been at a record high of 33.073 million in the three months to February 2020. The employment rate edged up to 75.2% in the three months to March from 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 significantly 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 121,000 in the three months to March to be at 1.623 million; this followed a fall of 50,000 in the three months to February and an increase of just 11,000 in the three months to January. There have 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 4.8% in the three months to March from 4.9% in the three months to February, 5.0% in the three months to January and 5.1% in the three months to December – the highest level since March 2016. The unemployment rate stood at 4.0% in the three months to February 2020.

“The inactivity rate rose to 21.0% in the three months to March, which was up 0.1 percentage points on the quarter and 0.6 percentage points on the year.

“The number of job vacancies continued to trend up from a record low in the three months to June and was at the highest level for over a year: it stood at 657,000 in the three months to April, up from 607,000 in the three months to March, 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. 

“HMRC and ONS Pay as You Earn Real Time Information data indicate that the number of paid employees in March was up 97,000 from March, but this was down 813,000 since March 2020.

“Claimant count unemployment fell 15,300 in April to 2.6281 million after a decline of 19,500 in March. Claimant count unemployment had previously risen to a peak of 2.6870 million in August from 1.2472 million in March 2020.”

Annual earnings growth still elevated in March; pay growth likely to be limited going forward

Howard Archer continues: “Annual earnings growth remained elevated in March, with the average rising to 4.1% after dipping to 3.8% in February from 4.2% in January and 5.4% in December. In contrast, there had been annual falls in earnings growth between April-July 2020. Earnings were up 4.0% in the three months to March.

“Annual regular earnings growth – which strips out bonus payments, which can be erratic and distort the overall figures – was 4.9% in March after reaching 4.5% in February, 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 4.6% in the three months to March.

“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 coronavirus 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.”