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Working Hours Slump Points to Trouble for U.K. Labor Market

U.K. Labor Market Holds Up as Government Support Preserves Jobs

The number of hours worked in the U.K. economy fell the most on the record in the coronavirus lockdown, underlining the risk facing the labor market as government income support is phased out.

Britons put in 175 million fewer hours per week in the three months through May, a decline of almost 17% from pre-virus levels, the Office for National Statistics said Thursday. Payrolls plunged, vacancies dropped sharply and private-sector wage growth slowed to a standstill.

Working Hours Slump Points to Trouble for U.K. Labor Market

At the moment, more than 9 million employees are being kept on payroll thanks to government wage subsidies. The question is what happens to them as support is tapered next month and ended altogether in October.

A British Chambers of Commerce survey Thursday found that one third of businesses expect to cut jobs in the next three months. It follows a warning from the Office for Budget Responsibility that the jobless rate could reach 12% by year end if just one in seven furloughed workers becomes unemployed, and over 13% in early 2021 under a more pessimistic scenario.

The prospect of an unprecedented 4 million people out of work -– triple the current total –- is increasing pressure on Chancellor of the Exchequer Rishi Sunak to add to the 30 billion-pound ($38 billion) stimulus package he announced last week as the economy struggles to emerge from its deepest recession in centuries. While the measures may mitigate the blow, Britain is nonetheless facing jobless rates last seen in the early 1980s.

Working Hours Slump Points to Trouble for U.K. Labor Market

And the official figures possibly understate the true impact of the crisis on jobs.

The jobless rate, which stayed at 3.9% in the three months through May, was held down partly because the shutdown of the economy meant many of those who lost jobs were unable to search for work and declared themselves inactive instead of unemployed.

In addition, the ONS estimated there were around half a million people who said they were employed but reported working no hours and getting no pay. The number of paid employees actually fell by around 650,000 over the lockdown period, far more than the officially recorded 126,000 drop in employment.

Vacancies dropped almost 60% in the three months through June. Regular pay rose just 0.7%, partly reflecting the fact that furloughed workers are getting just 80% of their normal wage, and wage growth ground to a halt for private-sector workers. Pay was lower than a year earlier when bonuses are included.

What Our Economists Say:

“The unemployment rate continues to provide a false read on the health of the jobs market. A wider set of indicators suggest there has been a marked deterioration. We expect the labor market to weaken as the year progresses and the government’s furlough scheme is wound down.”

-- Dan Hanson. To read the full REACT, click here

Global luxury brand Burberry Group Plc on Wednesday became the latest company to cut jobs in response to the pandemic after announcing a slump in sales last quarter. They include 150 office positions in the U.K., adding to the toll being racked up at companies from retailers Boots and John Lewis to Rolls-Royce Holdings Plc.

The challenge confronting the government and the Bank of England was hammered home by figures this week showing the economy barely grew in May, when some lockdown restrictions eased, after shrinking a staggering 26% over the previous two months.

The OBR estimates unemployment would now be around 35% in the absence of the Job Retention Scheme and a similar program for the self employed. Combined the initiatives are set to cost the taxpayer over 62 billion pounds this year.

©2020 Bloomberg L.P.