UK unemployment rate hits highest levels since 2016
- UK employment data reveals that the jobless rate jumped up by 5.1% in the final three months of 2020
- Self-employed workers and younger staff represent a substantial proportion of unemployed workers
- Chancellor Rishi Sunak’s furlough scheme has prevented a tsunami of unemployment
- UK unemployment levels could hit 7.8% in 2021 due to the COVID-19 pandemic
Employers have urged the British government to extend employment support schemes until July after the Office for National Statistics (ONS) released jobs data showing that UK unemployment rose to its highest levels since 2016 during the final three months of 2020.
According to the ONS, approximately 1.74 million people in the UK filed jobless claims between October and December, and an increase of 454,000 during the same period the previous year and by 121,000 quarter-by-quarter.
The jobless rate jumped up by 5.1% in the final three months of 2020, an increase of 1.3% on the previous year and 0.4% higher than the preceding quarter.
Official figures also show that unemployment rose at its fastest annual pace since 2009, with young workers and freelancers bearing the brunt of the job losses.
The number of people on company payrolls is now 726,000 lower than pre-pandemic levels, with 60% of those unemployed aged 25 years and younger.
Meanwhile, ONS data revealed that self-employment redundancies increased by an annualised rate of 653,000 to levels unseen since 2013. After years of continuous growth, an estimated 4,374,000 self-employed people are now out of work.
Employment levels across the retail, wholesale and motor trade sectors were amongst the worst recorded, albeit the retail industry reported record internet sales growth.
The data comes hours after UK Prime Minister Boris Johnson announced his lockdown exit roadmap, which laid out plans to remove all legal restrictions on social contact by June 21st.
However, while the jobless rate continues to climb, the furlough scheme has been proven to limit the number of redundancies significantly.
Bloomberg economist Dan Hanson said: “According to HMRC figures, 3.85 million people were on furlough in December, while an Office for National Statistics survey suggested the proportion of the workforce on the program jumped to 20%, or an estimated 5 million workers January-end.”
While the current lockdown is expected to impact employment data negatively, the furlough scheme’s first extension has helped stabilise the UK jobs market early into 2021.
Furlough scheme has helped to protect jobs
The latest employment data revealed employment levels fell at a record pace in the year to February 2021, also showed that UK unemployment at 5.1% is only around a percentage point higher than pre-virus levels.
Many employers also expect Chancellor Rishi Sunak to extend the widely-celebrated furlough scheme, which has offered a lifeline to businesses and livelihoods amid the COVID-19 pandemic.
The ONS also revealed that UK average earnings with a bonus jumped up by 4.7% month-on-month in December 2020, beating preliminary estimates for an increase of 4.1%.
However, given that thousands of UK firms are still struggling with mounting debt due to a lack of productivity amid ongoing lockdown restrictions, many businesses may be forced to make additional redundancies.
Capital Economics Economist Thomas Pugh also warned that the increase in UK average earnings is not as encouraging as the headlines suggest. Mr Pugh noted that a significant proportion of the UK’s workforce on lower wages has been declining, “so underlying earnings growth isn’t as strong as it looks.”
ING economists expect the unemployment rate to rise to 6.5% if the furlough scheme concludes in April as trading conditions will remain difficult for businesses until all coronavirus restrictions are lifted.
On Tuesday, HSBC, which employs more than 40,000 people across the UK, warned that job cuts were on the horizon.
The multinational bank said they were forced to make redundancies due to dwindling cash reserves and plans to concentrate on increasing earnings in Asia after data revealed the company suffered a 34% slump in annual pre-tax profits for 2020.
UK unemployment figures could rise to 7.8% this year
According to ING Economist James Smith, UK unemployment could hit 6.5% in 2021 if Chancellor Rishi Sunak refuses to extend the furlough scheme.
However, the Bank of England’s (BoE) forecasts jobless claims rising to 7.8% in Q3 2021 if the furlough program concludes as currently planned.
Many suspect the furlough scheme – which is scheduled to finish April-end – will be extended into the summer given the impact of current lockdown restrictions and the fact most businesses aren’t expected to reopen until at least May 17th.
The Chancellor may also announce targeted support for the sectors hardest hit by the pandemic to ensure they are given a fighting chance to resume operations once UK Prime Minister Boris Johnson eases lockdown rules.
Rishi Sunak had initially introduced a Job Support Scheme to incentivise employers to bring back staff from leave. The Chancellor may present a similar scheme to the Job Support Scheme in the March Budget.
However, even with additional financial support for businesses, further redundancies will be inevitable as there will be several firms that will be unable to reopen due to the pandemic.
To prevent a tsunami of unemployment, the Confederation of British Industry (CBI) has urged the UK government to extend the business rates holiday and introduce VAT deferrals to provide immediate relief to struggling sectors.
While the Prime Minister’s lockdown exit strategy has boosted business confidence and the UK’s recovery outlook, employers still have to make tough decisions to prevent their business from collapsing.
Several industry leaders have also criticised Mr Johnson for failing to provide any clarity on additional support measures, stating that further financial support is imperative if UK companies are to make it through the weeks ahead.