UK Records "Remarkably Small Rise" in Unemployment

- Employment numbers for April better than expected
- Furlough scheme saves jobs
- But second wave of job losses likely when furlough ends say economists

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The UK added 6K jobs in the three months to April according to the ONS, which was a surprising result for a market that was anticipating a fall in employment to the tune of 83K.

Labour market statistics for the UK in the April period have proven to be somewhat more robust than anticipated, with the ILO unemployment rate for April coming in at 3.9%, which is better than the rise to 4.7% markets had anticipated.

"The remarkably small rise in ILO unemployment in April suggests that the unemployment rate may not rise quite as far as we had anticipated," says Ruth Gregory, Senior UK Economist at Capital Economics.

The numbers claiming out of work benefits was however higher than expected with a figure of 528.9K recorded for May, against expectations for 400K. However, this number was roughly half the 1032K recorded in April.

While the data is welcomed, Gregory says the unemployment figures might not be capturing the full force of the downturn.

"We fear that bigger rises are on the way as the ILO measure catches up with more timely indicators of unemployment and firms engage in another round of redundancies as the government’s job furlough scheme is wound down," says Gregory.

Capital Economics say the more robust jobs numbers are likely to be partly a result of the government's furlough scheme, as furloughed workers are classed as employed.

Indeed, other labour market indicators point to a marked deterioration in the labour market with the total number of hours worked falling by 8% in the three months to April.

Wages are down, with the growth rate of regular average weekly earnings falling from 2.7% in March to 1.7%.

"Headline UK jobless rate still below 4 percent but other indicators tell a different story. Nearly 9 million temporarily away from work, drop of 600k in payrolls, 2.8 million jobless/low income benefit claimants, vacancies down 60% on March and a sharp 9% fall in hours worked," says Andrew Sentance, Senior Adviser to Cambridge Econometrics.

That the number of vacancies in May fell to a record low which suggests the ability for employment levels to make a rapid recovery over coming weeks and months is severely constrained.

Above image courtesy of Pantheon Macroeconomics

"Despite the apparent stability of the actual unemployment rate, the labour market data were still pretty awful. And some of this will surely start to filter through into the actual unemployment figures as the government’s job furlough scheme is wound down from August," says Gregory.

The ONS says the number of furloughed workers rose by 6 million at the end of March into April, leading to a large fall in hours worked.

Chancellor Rishi Sunak on May 12 announced an extension to the furlough scheme until the end of October despite its spiralling cost, as he attempts to prevent a wave of job losses in the summer.

"The latest labour market figures show that the Treasury’s Coronavirus Job Retention Scheme has succeeded in preventing massive job losses so far, though a second wave of redundancies remains likely when financial support for employers who furloughed workers is wound down between August and October," says Samuel Tombs, UK Economist at Pantheon Macroeconomics.

Pantheon Macroeconomics note that inactivity in the workforce grew, likely as a result of parents exiting the labour market to look after their children as schools are shit.

With schools unlikely to fully reopen until October at the earliest, and signs of resistance amongst some parents to send their children back to school where it is possible, the prospects of a full recovery in the labour market will likely remain frustratingly elusive.

"Inactivity rose just as much as employment fell. If, as we suspect, many of these newly inactive people have given up work to look after school-age children, then the scope for employment to recover is quite limited this year, as even a full reopening of schools in September cannot be taken for granted," says Tombs.