UK Labour Market Report: Signs Of Stabilisation Despite Unemployment Rate Rise

- UK unemployment at near five-year high

- Since start of pandemic payroll jobs have fallen by 726,000

- Younger workers have seen greatest drop in employment

- Vacancies outlook has improved since the summer

- Compositional effects distort wage growth

 

 

By Harry Daniels

LiveSquawk News

@harry.daniels71

 

23 February 2021 / 12.00 GMT

 

 

London – Unemployment in the UK rose to its highest level in almost five years as the government furlough scheme continues to hide the true state of the jobs market.

 

The Office for National Statistics said that Since February of last year, the number of payroll employees has fallen by 726,000.

 

The unemployment rate rose a tenth to 5.1% in the three-months to December, in line with expectations. The ONS said this was 1.3 percentage points higher than a year earlier and 0.4 percentage points higher than the previous quarter. Experts predict job losses could peak at 7.5% when the government's furlough scheme comes to an end.

 

The report said single-month and weekly estimates of the unemployment rate suggested that the rate was largely flat through the October to December period.

 

 Jobless claims change fell by 20,000 after gains of 7,000 previously.

 

In the three-months to December, the employment change fell by 114,000, far beyond the drop of 30,000 forecast and the fall of 88,000 reported for November.

 

Over the same period, redundancies slowed to 343,000 from a record high of 395,000 compared to last month.

 

Slight improvement to near-term data

The ONS said Experimental the HM Revenue and Customs' (HMRC's) Pay As You Earn (PAYE) Real Time Information data set indicated that the number of paid employees in January was up 83,000 from December, but was down 726,000 since February 2020.

 

Earnings data remains distorted

One anomaly of the pandemic related jobs landscape has been the strength in earnings data. Total annual earnings in the period October to December grew by 4.7% with regular pay (excluding bonuses) up 4.1%. This means, in real terms total pay has outpaced inflation by some 3.8%. The rate of total and regular pay growth had stood at 2.8% and 3.2% respectively in the three-months to December a year ago.

 

A large part of this distortion is explained by the fact that lower-paid workers are more likely to have lost their jobs over the past year. New ONS analysis by age band showed that the 18-to-24-year age group (typically lower earners) have seen the greatest decrease in work since February last year.

 

Economist Shaun Richards of Notayesmanseconomics's Blog took umbrage at the ONS’s reporting of the data. He tweeted, “Okay UK average earnings growth is not 4.7%, as today’s official release says. They admit that the compositional effects flatter it, which cuts it to 1.9% for starters. Some of the base data suggests -2.5% and I believe that more.”

 

All eyes on upcoming budget

Economists predict job losses could peak at 7.5% when the government's furlough scheme ends in April.

 

Addressing the House of Commons on Monday, Prime Minister Boris Johnson hinted that there would be further provisions made for furloughed workers until the country was full reopened. The UK’s Chancellor of the Exchequer, Rishi Sunak said there will be further provisions for jobs market in next week’s Budget (3 March).

 

Howard Archer chief economic advisor to the EY ITEM Club said, “While weaker, the latest labour market data show a fair degree of ongoing resilience, indicating that the extension of the furlough scheme to the end of April is having a significant impact in limiting job losses. The labour market would likely have come under appreciable pressure in the final quarter of 2020 from increased restrictions on activity, including the English lockdown in November, although the economy still grew 1.0% quarter-on-quarter.

 

“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.”