When will unemployment peak?

Unemployment continues to rise. Today’s update from the Office for National Statistics estimates that unemployment in the three months to November hit 5 per cent — that’s an estimated 1.7 million people out of work, a 0.6 per cent rise on the previous quarter.

The gradual climb suggests that the furlough scheme continues to hold off mass redundancies and provides further evidence that England’s second national lockdown didn’t hit as hard as the first. But the unemployment rate is set to worsen before it improves, with more optimistic forecasts estimating a peak of around 6 per cent later this year, while others (including the Bank of England) estimate around 8 per cent. Compared with the euro area’s 8.3 per cent, the UK’s unemployment figures are low but still serve as yet another reminder that the effects of lockdowns will linger, even once vaccines brings an end to restrictions. It is inevitable that some jobs will no longer exist once furlough ends after the best part of a year. 

Still, there is some evidence in today’s ONS update that aspects of the labour market are — or were — on the rebound. While 828,000 fewer people are estimated to be on payroll than in February last year, we’re finally seeing a small uptick: an increase of 0.2 per cent, or 52,000 people, between November and December. Meanwhile, the total number of weekly hours worked continues to follow a sharp V-shaped recovery, jumping 10 per cent between June-August and September-November.

Still, not every figure is as positive as the surface data would suggest. Earnings growth, for example, is back to pre-pandemic levels. But it’s a selective recovery: according to the ONS, the figures have been pushed up ‘by a fall in the number and proportion of lower-paid jobs compared with before the coronavirus pandemic’. In other words, the figures for earnings growth have shot up so quickly in large part due to people in low-paid work having lost their jobs.

All the while, the numbers claiming unemployment-related benefits continue to hover at record highs, hitting 2.6 million in December (an increase of 113.2 per cent, or 1.4 million, since last March). The longer the economically damaging measures that defined last year continue, the harder the path to recovery becomes.