According to figures released by the Office for National Statistics (ONS) this morning, the unemployment rate picked up further in the final quarter of 2020, reaching 5.1%. This represents an uptick of 0.3 percentage points compared to Q3 and the joint-highest unemployment rate since the three months to October 2015. Meanwhile, the employment rate fell to 75.0% in Q4, marking a quarterly fall of 0.3 percentage points.
This morning’s figures suggest that the state of the labour market continues to worsen. The unemployment rate has now picked up for six consecutive rolling three-month periods, beginning in the three months to July, while a cumulative 1.1 percentage points have been added to the unemployment rate since the beginning of the crisis. Though these figures represent considerably less violent swings than in comparable economies lacking labour market support, such as the US, the fact that they continue to exhibit an upward trajectory is reflective of the persistent pressure that the pandemic is exerting on businesses.
Theoretically, the onset of the third national lockdown from early January should have added to this weakness. With businesses suffering from a further period of curtailed activity, revenue streams will have been considerably weakened, making cost-cutting decisions on employment levels more likely. This is not borne out in timely labour market estimates, however. For instance, the claimant count decreased slightly on a monthly basis, reaching 2.6 million in January. Meanwhile, experimental statistics from HMRC pointed to an estimated 83,000 additional payrolls in January than in December. These figures suggest that businesses are becoming slightly more accustomed to operating under restriction measures and are thus requiring a greater degree of labour inputs.
Yesterday, the Prime Minister outlined the Government’s plans for lifting lockdown measures, with restrictions set to be progressively loosened between March and June. Besides the expected uptick in economic activity as restrictions are dropped, ongoing government programmes are set to play an important role in influencing the health of the labour market this year. Further information on government support measures, notably the furlough scheme, is set to be provided via the Budget on 3rd March. Any extension to the furlough scheme would be likely to both delay and dampen the anticipated spike in the unemployment rate. Indeed, if the scheme were to be extended into Q3, when there are expected to be no limits on social contact, then the spike in unemployment could be even more severely reduced in magnitude, saving many thousands of individuals from job losses.