Covid-19 sees jobless rates rise, business investment fall
16 Jun 2020
The number of UK employees fell by more than 600,000 last month, while job vacancies are at a record low, according to the Office for National Statistics (ONS), as Covid-19 restrictions on business activity impacted the labour market
16 Jun 2020
It says early indicators, based on HMRC’s real time PAYE data for May, suggest that the number of employees in the UK on payrolls is down over 600,000 compared with March.
Meanwhile, the number of vacancies in May has fallen to a record low. There were an estimated 476,000 vacancies in the UK in March to May, 342,000 fewer than the previous quarter and 365,000 fewer than a year earlier; experimental single-month estimates indicate a decrease of approximately 60% of vacancies for May compared with March.
Labour Force Survey (LFS) data, covering the period up to end of April, show weakening employment rates, with the self-employed and men seeing some reduction in employment.
The largest changes are seen in the number of people temporarily away from work, including furloughed workers, which rose by 6m at the end of March into April, leading to a large fall in hours worked.
Employee average pay growth slowed notably in April, and the three months to April saw total pay fall in real terms for the first time since January 2018; pay declined in industries where furloughing was most prominent, many of these being the lowest-paying industries, in particular accommodation and food service activities.
However, the ONS figures show little change in the UK unemployment rate for now. For the three months to April this was estimated at 3.9%, 0.1 percentage points higher than a year earlier but largely unchanged on the previous quarter.
At the same time, the total number of weekly hours worked in that same period was 959.9m, down a record 94.2m (8.9%) hours on the previous year.
The first three months of the year also saw total pay fall in real terms for the first time since January 2018.
The number claiming benefits continued to rise during May reaching 2.8m; this includes both those employed with low income or hours and those who are unemployed.
Jing Teow, PwC senior economist, said: ‘Today’s data shows just how hard the coronavirus has hit workers across the country.
‘Employment and unemployment rates have remained broadly unchanged over the three months to April.
However, this picture belies the significant number of workers (8.9m, or one in four) being furloughed as a result of the fall in economic activity as these workers are still classified as being employed.’
As businesses come out of lockdown from May, labour market prospects could improve, Teow suggested.
‘Our research suggests that around a quarter of businesses expect to restart trading in the next month. The bigger question is how many businesses and workers will eventually return after lockdown.
‘The tapering of the furlough scheme from August, with a portion of the wage bill needing to be picked up by the private sector, could hit many businesses hard.
‘In addition, some furloughed workers may not have jobs to return to when this is over, which could put a dampener on the recovery. Additional stimulus may therefore be required to support a sustained labour market recovery,’ she said.
Recruitment company chair James Reed, warned that ‘what was sadly a health emergency is now rapidly becoming an employment crisis’, with the danger that unemployment could go above 15%.
‘We need to act now if we’re to ease the economic effects of the lockdown.
Existing jobs must be protected, jobseekers need support finding new roles, and furloughed workers should be redeployed or reskilled.
‘In the longer term, economic stimuli such as reforming National Insurance and employment law, re-booting apprenticeship and training schemes, investing in infrastructure and expanding research and development can help to improve current employment prospects,’ Reed said.
The EY ITEM Club has further downgraded its GDP forecast for the UK economy this year and is now predicting an 8% contraction for 2020 compared to the 6.8% fall it predicted in April.
It has also downgraded its Q2 2020 forecast from a 13% contraction to a record 15%. The gloomier forecast figures reflect a poor economic performance in April due to the lockdown and deeper than expected contraction in Q1.
While the forecasts indicate year-on-year GDP growth of 5.6% in 2021, the UK economy is still not expected to return to its Q4 2019 size until early 2023.
Howard Archer, chief economic advisor to the EY ITEM Club, said: ‘The UK economy had been disappointingly lacklustre over the first two months of 2020, even before Covid-19 started to become a factor.
‘After a challenging first half, our forecast shows that the UK economy is expected to start to recover in Q3 2020 on the assumption that the Government continues to gradually relax lockdown restrictions.’
The report predicts that total investment will fall 13.7% in 2020, with business investment declining 14%. This will be partially offset by an expected 4.8% increase in government investment. Additionally, government spending is forecast to rise 4.5%.
Looking ahead to 2021, government investment is expected to increase 12.9%, contributing to overall investment growth of 3.9%. Business investment is expected to rise by 1.4% y/y in 2021 as companies recover from the impact of Covid-19.
Mark Gregory, EY UK’s chief economist, said: ‘Over the coming months, companies have a double challenge: they need to respond to the short-term impact of Covid-19 on their business, and they will also need to catch-up to long-term shifts in the economy which have been accelerated by the pandemic.
‘Things like deglobalisation and the digital economy mean the “new normal” will be different to what’s gone before.
‘With so much government support in the economy, it will also be important for the private sector to align itself with government initiatives.’