UK unemployment hits 5% after hiring recovery put on hold

The UK labour market was all but frozen at the end of 2020, with unemployment edging up and a previous pick-up in hiring starting to stall as the surge in Covid-19 infections put reopening on hold.

The jobless rate rose to 5.1 per cent in the three months to December, a rise of 0.4 percentage points from the previous quarter and in line with expectations, official statistics showed on Tuesday. The employment rate of 75 per cent was 1.5 percentage points lower than a year earlier, with 541,000 fewer people in employment.

The figures suggest that the extension of the government’s furlough scheme has helped to limit redundancies. They will reinforce calls from business and unions for support to be extended well after the reopening of the economy begins to reduce the risk of a further surge in job losses.

“The government will need to provide ongoing help . . . the Budget next week needs to provide a bridge for businesses to begin the process of rescaling and rehiring,” said Tej Parikh, chief economist at the Institute of Directors.

Ben Harrison, director of the Work Foundation, said it was “vital that support measures remain in place for as long as they are needed, so that workers and employers do not face a cliff edge as restrictions are eased.”

“Throughout the crisis, my focus has been on doing everything we can to protect jobs and livelihoods,” chancellor Rishi Sunak said in response to the data, adding that he would set out measures to support jobs through the remainder of the pandemic and recovery in next week’s Budget.

The headline unemployment rate does not reflect the true extent of slack in the labour market.

Real-time payroll data collected by HM Revenue & Customs suggest that despite small increases over the past two months, there are 726,000 fewer employee jobs in the UK than there were last February before the pandemic hit, a fall of 2.5 per cent. The biggest drop in payrolled employees has been among 18 to 24-year-olds.

In addition, more than 300,000 people said in December that they were away from work because of the pandemic and receiving no pay. The ONS said that around 10 per cent of the workforce had been asked to take furlough leave in early December, with almost double those numbers furloughed once the latest lockdown was in place in January.

Hiring activity — which had improved since the summer — also began to slow as renewed lockdowns hit the hospitality industry, the ONS said. The number of job vacancies in the three months to January was 26 per cent below pre-pandemic levels, with the improvement seen since the summer slowing over the past few months.