U.K. Jobs Crisis Worsens as Employment Drops Most Since 2009
Britain’s mounting labor market crisis was underscored by a 220,000 slump in employment during the height of the lockdown.
(Bloomberg) --
Britain’s mounting labor market crisis was underscored by a 220,000 slump in employment during the height of the coronavirus lockdown, the worst decline since the global financial crisis.
The fall in the second quarter coincided with a period that saw the most strict restrictions to contain the spread of the disease. The Office for National Statistics said early indicators for July suggest that the number of employees on payrolls is down around 730,000 compared with March.
The figures highlight an economic shock that’s expected to escalate as government support for wages is gradually withdrawn from this month. They also heap pressure on Chancellor of the Exchequer Rishi Sunak to extend the furlough programs that have so far kept the worst of the economic crisis at bay.
The U.K. economy is reeling under the worst recession in at least a century, with data on Wednesday set to show the biggest economic contraction among Group of Seven nations in the second quarter.
That has yet to translate into a significant jump in the unemployment rate, which stayed at 3.9% in the three months through June as people refrained from looking for work during the lockdown. Still, officials are increasingly worried that will change later this year, threatening any recovery in growth.
What Bloomberg Economists’ Say...
“A sharp fall in employment and the subdued level of vacancies both suggest the labor market has taken a significant hit in recent months. We expect the true cost to be revealed once the government’s furlough scheme ends in October. Our baseline forecast sees the jobless rate peak at 8.5% at year-end.”
-- Dan Hanson, senior U.K. economist. Read his full REACT.
Workers on the furlough program, which has helped support 9.6 million jobs since it began in March, are classified as still being employed, and both the Bank of England and the U.K.’s fiscal watchdog have warned of a rapid acceleration when the plan ends in October.
Tuesday’s data revealed broad-based evidence of the hit to the labor market inflicted by the pandemic:
- Pay excluding bonuses fell 0.2% in the second quarter from a year earlier -- the first negative reading for basic pay since records began in 2001
- While vacancies have picked up since the economy began to reopen, there were 274,000 fewer openings in the three months through July than in the previous quarter
- The number of claims for unemployment benefits climbed to 2.69 million in July, an increase of almost 1.5 million since March
- Around 7.5 million workers, including furloughed employees, were temporarily away from work in June, with over 3 million off for at least three months
- The number of hours worked each week on average in the second quarter plunged a record 18.4% to the lowest level since 1994
BOE policy makers expect unemployment to rise materially to about 7.5% by the end of the year, accompanied by an increase in inactivity of about 400,000 people relative to before the crisis.
Some firms are already paring back. This month alone, newsagent and stationery retailer WH Smith PLC said it’s cutting 1,500 jobs while Dixons Carphone Plc said it would lose 800 roles. Other household names to announce losses recently include Boots, the John Lewis Partnership, Selfridges and Harrods department stores, and luxury retailers Burberry and Mulberry.
The ONS said the drop in in employment was driven by workers aged 65 and over, the self-employed and part-time workers. There were also around 300,000 people away from work because of the pandemic and receiving no pay in June.
Most BOE officials agree that the labor market will be key to the recovery. Some economists are warning more than 3 million people could be out of work before the end of 2020 -- the worst since the de-industrialization of Britain under Margaret Thatcher in the 1980s.
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