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Our views 16 June 2020

UK: Beware headline unemployment rates

By Melanie Baker, Senior Economist

5 min read

The UK unemployment rate again surprised on the positive side, staying at 3.9% for the three months to April, rather than rising to 4.7% as expected. 

Employment actually grew 6K (vs -110K expected). Regular pay growth, however, dropped sharply.  

Last week’s US payrolls report was a big positive surprise. This is not that kind of surprise. Look beneath the surface of the headline unchanged unemployment rate, and a lot has changed:  

  • Experimental data from HMRC/Office for National Statistics (ONS) using PAYE data, also published today, suggests a much less healthy picture. That data shows that in April, the number of paid employees fell by 449K between March and April.  Early estimates for May indicate another 163K fall. 
  • The claimant count has continued to rise (although the ONS cite an increase in eligibility for Universal Credit there – consequently the data are difficult to read and the ONS say they are unable “to identify to what extent people who are employed or unemployed have affected the numbers”).  
  • The number of vacancies in May fell to a record low, falling 342,000 over the three months to May.
  • There was a large fall in the numbers of hours worked, reflecting furloughed workers: The total number of weekly hours worked in the three months to April fell 8.9%. Unsurprisingly perhaps, hours fell the most in the “accommodation and food service activities” sector.
  • The ONS say the numbers of people “temporarily away from work” rose by 6 million at the end of March into April.
  • Real terms pay fell for the first time since January 2018. According to the ONS, pay declined in industries where furloughing was most prominent.
  • There was a record decrease in the numbers of self-employed.

Why was the unemployment rate unchanged?  Employment in the UK statistics includes those in employment, but with a job they were “temporarily away from”, which should capture most of the furloughed workers therefore.  However, for many companies, demand will still be running well short of pre-crisis levels.  So long as that remains the case, as the furlough scheme unwinds, the headline unemployment numbers are likely to worsen; Some companies are likely to let workers go, rather than keep them on the payroll as government support is withdrawn. 

Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations