UK Labour Report: This Is Where The Good News Ends

- April claimant count surges

- Final week of March shows first impact of virus crisis

- Vacancies evaporate

 

 

By Harry Daniels

Editor-in-Chief, LiveSquawk News

@ HarryDaniels71

 

London, 19 May 2020 (LS NEWS) – In a surprisingly upbeat labour market report, the ILO jobs data in the three months to March showed strong employment growth—up until the last week in the month at least –with a sharp rise in the more prescient claimant count.

 

The Office for National Statistics (ONS) said the number of people employed rose 211,000 in the three months to March to reach a new record high of 33.1mln, or a rate of 76.6pct. This is up from a rise of 172,000 in the three months to February and 184,000 in the three months to January.

 

The report said claimant count unemployment spiked by 856,500 in April to nearly 2.1mln, taking the rate to 5.8pct from 3.5pct previously. In March, claims rose by just 5,400 people.

 

Job vacancies fell sharply in the three months to April, with an estimated 637,000 vacancies in the UK in the period, 170,000 less than the previous quarter and 210,000 fewer than a year ago. This was the largest annual decline since the second quarter of 2009 in the aftermath of the Global Financial Crisis.

 

UK unemployment fell a tenth to 3.9pct in the three months to March, which was below the consensus of 4.3pct.

 

The party’s over

 

HSBC Senior Economist Elizabeth Martins said, “Not for the first time, the data point to a good start to a year for the UK before the Covid-19 outbreak and lockdown.[…] But we doubt there will be much celebrating: the relative lateness of the lockdown means that UK GDP and unemployment compare favourably with others for the first quarter, but the forward-looking April indicators suggest this outperformance will be short-lived. We think the BoE will announce another GBP100bln of QE on 14 June.”

 

It should be noted that most of the data collated relate to the period prior to the implementation of coronavirus social distancing measures. The UK-wide lockdown came into force on 23 March.  

 

Wage increases disappointed and missed forecasts. Regular annual earnings growth (ex-bonuses) slowed to 2.7pct in the three months to March, down from 2.9pct in February. Total earnings growth increased at an annual rate of 2.4pct in March versus 2.8pct in February.

 

Howard Archer, chief economic advisor to the EY ITEM Club, said: “Earnings saw a marked weakening in growth in March, and they look set to be significantly impacted over the coming months. Even before the downward impact on earnings from the coronavirus hit to the labour market, earnings growth had come off the highs seen in mid-2019.”

 

Total weekly hours also declined, dropping 12.4mln to 1.04bln between January to March 2019 and January to March 2020.

 

“This was the sharpest fall since 2010,” Martins said, "and suggests that the Job Retention Scheme (JRS) did have an impact on the March numbers, by keeping workers employed while their hours were cut to zero, even though it was only announced on 23 March. In the UK, a furloughed worker counts as employed.”

 

A UK treasury official pointed out that some 8mln jobs have now been furloughed, with GBP11.1bln claimed so far through the coronavirus job retention scheme.

 

Hurdles ahead

 

UK Chancellor of the Exchequer Rishi Sunak has been widely praised for his assertiveness and rapid response to the crisis, and the scheme is widely accepted to have been a success to date.

 

However, James Smith, Developed Markets economist for ING Bank, said the treasury’s biggest challenge may still lie ahead. “Covid-19 looks set to change the landscape for many businesses for the foreseeable future, with social distancing here to stay until a widely available vaccine arrives.

 

“Many firms will be unable to operate at full capacity for some time, and this means there's an increasing risk that businesses begin to make longer-lasting changes to their business models. That, in turn, raises the risk of a second wave of redundancies depending on how and when the Job Retention Scheme is eventually phased out.”

 

Sunak will be appearing before the House of Lords economic affairs committee for a Q&A session this afternoon, with peers wanting details about the long-term costs of his financial support packages and whether taxes will rise as a consequence.

 

-- Additional reporting by Peter Devlin