Unemployment rising sharply before furlough scheme ends, showing workers face a tough autumn

Unemployment rose sharply even before the start of the winding down of the Coronavirus Job Retention Scheme (JRS) from August, with young people at the centre of Britain’s mounting jobs crisis, the Resolution Foundation said today (Tuesday) in response to the latest ONS data.

The headline unemployment picked up in the three months to July – from 3.9 to 4.1 per cent – driven by a sharp increase in the monthly rate of 0.6 percentage points in July.

The increase was led by falling youth employment, with the number of under-25s in work falling by 156,000 in the three months to May-July. This reflects the fact that young people have been hardest hit by the crisis, says the Foundation.

The more recent RTI payroll data showed that employment was down by 695,000 in August compared to March. However, the further fall of 36,000 in August compared to July does not indicate a steep increase in the rate of job losses in the first month in which employers were asked to contribute to small amounts to the wage costs of furloughed employees.

The sharp uptick in redundancies – up 45 per cent on the quarter to May-July, to 156,000 – is a worrying leading indicator of sign of things to come, especially with the ONS showing that there were 5.5 million employees still employed but temporarily without work at the end of August (the majority of whom are on furlough).

The Foundation notes that there are some encouraging signs in the data, with vacancies up 54 per cent since May (though still over a third down on pre-crisis levels).

Nonetheless, today’s data add to the evidence that the UK labour market is set for an extremely challenging Autumn once the Job Retention Scheme ends in October.

The Foundation says that the Chancellor needs to act soon to offer further targeted support beyond October for firms and workers in hard-hit sectors like hospitality, arts and leisure, which are still not able to operate at full capacity due to public health guidelines.

Nye Cominetti, Senior Economist at the Resolution Foundation, said:

“The reopening of the economy this summer after lockdown may have boosted economic activity, but it has not spurred a recovery in the jobs market, with unemployment and redundancies rising sharply in July.

“Coming before the Job Retention Scheme that is still supporting millions of workers began its phase-out, this points to an extremely challenging autumn for employment.

“All the evidence is point to a mounting jobs crisis across Britain.”