UK payroll figures sees record surge
- UK payroll figures for June 2021 rose to the highest level since the start of the coronavirus pandemic, increasing by 356,000.
- UK job vacancies are increasing as the economy gathers pace.
- Sectors such as the UK labour market are experiencing significant staff shortages.
- Chancellor of the Exchequer Rishi Sunak says the UK is bouncing back.
- UK wages rose 7.3% in the three months through May 2021.
- The BoE is likely to reduce the pace of its bond-buying programme.
New data reveals that UK payroll jumped to the highest level since the start of the coronavirus pandemic during June 2021, rising by 356,000. The substantial jobs growth for the UK can be attributed to the rapid economic recovery due to the lifting of coronavirus lockdown restrictions.
The UK’s economic reopening has also led to considerable wage growth in the three months to May 2021, rising by 7.3%, the fastest wage growth since 2000. The sharp increase is also relative to the depressed wages seen during the start of the coronavirus pandemic.
Although UK payroll has increased, it is undoubtedly a step in the right direction, numbers are still 206,000 below pre-pandemic levels, with many workers remaining on furlough.
The surge in UK payroll was largely down to a rise in food and accommodation jobs, which increased by 94,000. Both industries were significantly hit by coronavirus lockdowns and have since seen a dramatic recovery following the lifting of COVID restrictions. There was also a surge in administration and support services, which saw an increase of 72,000.
The Office for National Statistics confirmed that UK unemployment in the three months to May 2021 stood at 4.8%, down from 5% during December to February 2021, mostly in line with economists’ predictions. In addition, employment significantly improved amongst younger age groups, with a rise of 135,000 now in employment, who had been particularly impacted by job losses during the start of the coronavirus pandemic.
Tony Wilson, the Institute for Employment Studies (IES) director, stated young people are now less likely to enter customer-facing roles to lessen the risk of catching COVID-19, mainly as many are yet to be vaccinated.
UK Chancellor Rishi Sunak’s furlough scheme will be wound down by the end of September 2021, prompting fears that UK unemployment levels will be pushed back up. Economists forecast that UK unemployment will rise to 5.5% once the furlough ends and we enter the winter months.
Yael Selfin, the chief economist at KPMG UK, predicts approximately one in 10 furloughed workers may not be able to return to their original job.
UK labour market experiencing staff shortages
While job vacancies can be positive news, highlighting business expansion, they can also indicate other issues such as skills shortages, seen mainly within the UK labour market.
In the three months to June 2021, job vacancies rose by 241,000 to 862,000, which is the highest quarterly rise since 2001 and just under the record-high job vacancies seen in late 2018. However, data indicates that employees within the labour market are down by 200,000 compared to pre-pandemic levels. In particular, there is estimated to be a 30,000 shortfall in the number of UK heavy goods vehicle drivers.
Kate Shoesmith, deputy chief executive of the Recruitment and Employment Confederation (REC), says more people are steering away from labour work during the coronavirus pandemic as they are reluctant to work long hours and face night work. COVID-19 has shifted priorities, with most people valuing family time and jobs where they can take regular breaks.
Ruth Gregory, an economist at Capital Economics, said whilst the labour market is seeing staff shortages, these issues are likely to be temporary. There is strong evidence that whilst the labour market is recovering, lower employment levels than previously reported indicate that it could still absorb inflation pressure.
Although there has been a rise in non-UK born workers of 200,000, which is significantly under previous years. There has also been a fall in EU-born workers from 2.43 million to 2.3 million, contributing to staff shortages in the UK.
Tamara Hill, from the British Retail Consortium, says non-UK born workers would typically fill the jobs shortages. The lack of foreign workers in the UK is partially down to new UK immigration rules, which does not address scarce skills.
The lack of foreign workers is also largely down to COVID-19, with 1.3 million non-UK born workers returning to their home country during the coronavirus pandemic.
Kate Nicholls, chief executive of trade body UKHospitality, said the UK’s hospitality sector is experiencing a case of wrong workers in the wrong place at the wrong time. For example, the hospitality industry often consists of students gaining part-time work during their studies. However, due to COVID-19, many students are either studying at home or have moved away from large cities to help save money during the coronavirus pandemic.
However, Tony Wilson from IES also highlighted that the hospitality industry is well known for having a high staff turnover even before the coronavirus pandemic.
Rishi Sunak says the UK economy is bouncing back
Following the rise in UK inflation to 2.5% during June 2021 and the recent revelation of UK payroll increases, UK Chancellor Rishi Sunak declared that the UK economy is bouncing back.
Mr Sunak stated that he looks forward to seeing more people return to work as we enter the final days of coronavirus restrictions, which will be fully lifted on 19th July 2021. The UK government plans to help individuals secure well-paid work that will meet their long-term needs.
The Chancellor highlighted that the number of UK employees on the furlough scheme had halved in the three months to May 2021, suggesting the UK’s continued economic strength. It was noted that the UK government jobs strategy has proven successful over the past year and will, therefore, continue to work. Mr Sunak stated that the British public should have confidence that the ongoing jobs strategy will help drive economic recovery and provide continued opportunities.
Minister for Employment Mims Davies MP highlighted that the UK government supported over 14.5 million during the coronavirus pandemic. Ms Davies noted it was impossible to protect every job but believes the UK government protected as many as they could, whilst also assisting jobseekers to secure work through various Department of Work and Pensions (DWP) programmes.
The jobs growth data comes a day after the Bank of England (BoE) said they were considering acting on UK inflation sooner than anticipated. BoE Deputy Governor Dave Ramsden stated on Wednesday that preparations for tightening UK monetary policy could be approaching. Mr Ramsden said that UK inflation could hit 4% by the end of 2021, double the BoE target rate.
On Thursday, Monetary Policy Committee (MPC) member Michael Saunders stated that the BoE’s total GBP 895 billion quantitative easing programme could entrench higher UK inflation prospects if the UK’s economic recovery continued to gather pace.
The BoE is taking a cautious approach to easing stimulus measures due to uncertainty surrounding UK jobs once the governments’ furlough scheme winds up in September 2021.
There is the possibility that the BoE could cut its current bond-buying programme short, which will be discussed during the next monetary policy meeting on 5th August 2021. Economists at HSBC do not believe that many MPC members would be in favour of reducing the bond-buying programme in August 2021. However, the pace of buying will likely decelerate to ensure the programme lasts until the end of the year as anticipated.
Another route the BoE could take is to finish the bond-purchase programme and let the supply run down, not reinvesting the matured debt into additional bonds.
The BoE could also sell some of the bonds they have already compiled, with all UK government bonds now totalling 40% of Britain’s annual economic output. However, this option is more likely to be considered further down the line of the UK’s economic recovery after the BoE has hiked interest rates.
In March 2020, the BoE slashed interest rates to 0.1% when the coronavirus first took its toll on the UK. However, with the UK economy now gathering pace more quickly than anticipated, it is forecast that interest rates could rise to 0.25% by around August 2022, much earlier than initially planned.