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United Kingdom Unemployment December 2020

United Kingdom: Furlough scheme continues to buttress the labor market

According to the ONS, in September–November the unemployment rate rose to 5.0%—an over four-year high, and up from 4.9% in the previous rolling quarter. Experimental data for December showed the claimant count was broadly stable and employment picked up slightly from November, while job vacancies continued to recover in the three months to December. Taken together, the data highlights that while the labor market remains downbeat due to soft demand and domestic restrictions, the government’s wage subsidy scheme (furlough) is significantly limiting the damage.

In December, the chancellor announced the extension of the furlough scheme until end-April, with the government continuing to contribute 80% towards employees’ wages. This should stem the rise in unemployment early in the year. However, there is still the risk of a more meaningful rise in unemployment once the scheme ends, if economic activity is still slack.

According to James Smith, economist at ING:

“Unemployment rose through September and October ahead of the originally planned end-date for the furlough scheme. While the policy was ultimately extended, redundancies rose and peaked in September as firms cut their workforce in anticipation of reduced wage subsidies. […] The better news is that real-time payrolls data tentatively suggests that employment has since stabilized. […] The risk is that we will see a further rise in unemployment, if support is tapered before the hardest hit sectors are allowed to open. The fact that there were still over a million workers ‘fully furloughed’ back in October when the scheme was originally slated to end, shows that there is a large pool of workers who have not been able to work at all due to the ongoing restrictions. The disruption stemming from the new UK-EU deal will also inevitably put pressure on jobs as businesses continue to grapple with the permanent increase in costs and trade barriers.”

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