U.K. Unemployment Climbs Most Since 2009 as Job Cuts Soar

(Bloomberg) -- U.K. unemployment rose the most since the financial crisis over the summer, raising questions about how many job cuts could have been avoided had Chancellor of the Exchequer Rishi Sunak announced an extension to his furlough program sooner.

The number of people looking for work surged by 243,000 in the three months through September, taking the jobless rate to 4.8%, the highest in four years, the Office for National Statistics said Tuesday. Job cuts, known as redundancies in the U.K., increased by a record 181,000 in the quarter to over 300,000.

Sunak said last week the government will pick up 80% of the pay bill for employees unable to work full time because of the coronavirus through March, prompting economists to predict that unemployment will now peak at a lower level than previously estimated.

But the move came too late for many workers, with firms from pub chain Marston’s Plc to Manchester Airport Group announcing cuts in recent weeks. Furlough was due to end on Oct. 31 to be replaced by a less generous Job Support Scheme, which required an increased contribution from companies and was only available to those that were partially operating. Even the JSS was not announced until late September.

“In the Autumn, employers faced difficult decisions around retaining staff as government support looked set to decline,” said Tej Parikh, chief economist at the Institute of Directors. “The extension of the furlough scheme through to March is welcome as it has given directors certainty to plan ahead for their staff. Unfortunately, the change appears to have come too late in the day for some.”

Sunak also came under attack from the opposition Labour Party. “The government’s failure to face up to the scale of this jobs crisis in time has cost people their livelihoods,” said Jonathan Reynolds, the lawmaker who speaks on work and pensions matters.

Under Pressure

Sunak initially extended the furlough until early December as the government announced a new four-week lockdown in an effort to bring a second wave of the virus under control.

Days later, however, the chancellor bowed to pressure from labor unions, opposition politicians and small businesses for 80% support to be made available throughout what’s expected to be a difficult winter, with the economy also facing Brexit chaos unless Britain and the European Union can strike a trade deal by year end.

Government support was reinforced by fresh action from the Bank of England, which boosted its bond-buying program by a larger-than-expected 150 billion pounds ($198 billion) after predicting the economy will shrink this quarter.

What Bloomberg Economics Says:

“Sunak is clearly seeking to prevent mass unemployment, so we don’t expect a re-run of the summer when it looked like more than two million workers were going to be made redundant because government support was due to be withdrawn.”

-- Dan Hanson, U.K. Economist. For the full REACT, click here

Hanson reckons unemployment will now peak at close to 7.5% in the second quarter, a rate last seen in 2013. Prior to furlough being extended, he was forecasting a rate of 8.5% by the end of the year. JPMorgan Chase economist Allan Monks sees a peak of 7% in the same quarter.

In a statement Tuesday, Sunak said the figures underlined the scale of the challenge faced by the labor market.

“I know that this is a tough time for those who have sadly already lost their jobs, and I want to reassure anyone that is worried about the coming winter months that we will continue to support those affected and protect the lives and livelihoods of people across this country,” he said.

Unemployment in September alone, when some restrictions were re-imposed in response to rising virus cases, rose to 4.9%, the highest since 2016. The number of employees on payrolls in October was down 782,000 from March, before the pandemic struck.

“The next couple of months will be crucial,” said Matthew Percival, a director at the Confederation of British Industry. “The government must use this time well to get ahead of the curve on the economy as well as the virus.”

©2020 Bloomberg L.P.