The number of workers on UK payrolls dived more than 600,000 between March and May, official figures suggest.
Meanwhile, the number of people claiming work-related benefits – which includes the unemployed – was up 126% to 2.8 million.
The early estimates reflect the impact of around six weeks of lockdown in which large parts of the UK were shut.
But economists say the full effect on employment will not be felt until wage support schemes end in October.
“The slowdown in the economy is now visibly hitting the labour market, especially in terms of hours worked,” said Jonathan Athow, deputy national statistician for economic statistics at the Office for National Statistics (ONS).”
Frances O’Grady, secretary-general of the Trades Union Congress, said the labour market was “on red alert”.
“We need strong action now to stop lasting economic damage,” she added.
Separate figures published by HMRC on Tuesday showed that a total of 9.1 million workers are having their wages paid through the government’s furlough scheme – more than a quarter of the workforce.
This explains why overall, the official UK unemployment rate for the three months to April held steady at 3.9%.
However, the ONS said the total number of weekly hours worked in the period had dropped to 959.9 million – down by a record 94.2 million, or 9%, on the previous year.
And there was a record fall in job vacancies between March and May to 476,000 – down 342,000 from the previous quarter – hinting at worse to come.
Capital Economics economist Ruth Gregory said it was “abundantly clear” that the labour market had weakened dramatically.
“Despite the apparent stability of the actual unemployment rate, the labour market data were still pretty awful. And some of this will surely start to filter through into the actual unemployment figures as the government’s job furlough scheme is wound down from August.”
Tej Parikh, chief economist at the Institute of Directors, agreed: “The furlough scheme continues to hold off the bulk of job losses, but unemployment is likely to surge in the months ahead.”
‘I’ve applied for more than 100 jobs’
Kayleigh Rennix has never struggled to find work before. The HR manager from Essex was earning close to £40,000 working in the education sector before she resigned in March, fearing her role was at risk.
Since then she’s applied for dozens of jobs, but has had little interest from employers.
“As my leaving date approached, coronavirus reared its ugly head. I would say I’ve applied for more than 100 jobs and not had many call-backs,” she says.
Now the 34-year-old has found herself relying on benefit payments for the first time in her life, and expects to move back in with her parents when her tenancy expires later in the summer.
Poorer areas ‘hit hardest’
Despite the gradual reopening of the economy, some economists believe unemployment could top 10% later in 2020 as social distancing rules remain in place and consumers curb their spending.
The Institute of Employment Studies (IES), an apolitical think tank, pointed out that the number of claims for work benefits had risen 1.6 million since March – a rate faster, it says, than during the Great Depression of 1929.
It said that currently eight unemployed people are chasing every job vacancy in the UK – up from just two before the crisis.
“If the public health crisis is just starting to ease, today’s figures show that the unemployment crisis is only just beginning,” said Tony Wilson, director of the IES.
“It’s clear too that this crisis is hitting many poorer areas hardest – with coastal towns and ex-industrial areas seeing particularly big increases in unemployment.”
The IES said among the worst hit areas of the UK were:
- Blackpool, where one in eight residents is claiming work related benefits
- Thanet in Kent, where the rate stands at one in eleven
- And Birmingham, where the rate is also one in eleven.
The headline quarterly employment and unemployment numbers remain barely changed, as all the furloughed workers count as having jobs.
The furlough scheme is working in suppressing unemployment and protecting livelihoods so far, the real test of its functioning is what happens now.
The test of it will be whether those jobs remain as the taxpayer wage support is eased away. It requires the government to inject as much confidence as possible, into the minds of employers facing uncertainty and declining bank balances.
But further rescue package and employment support will be required too. The balancing act with the pandemic remains as delicate as ever. As one Cabinet minister puts it – “we need to restart the economy, without restarting the virus”.
A swathe of businesses have announced job cuts as the economy has contracted sharply due to the pandemic, opting not to furlough those workers instead. Examples include:
- The Restaurant Group, which owns Frankie and Benny’s, which expects to cut up to 3,000 workers
- The UK’s biggest builders’ merchant, Travis Perkins, which plans to cut about 2,500 jobs, or 9% of its workforce.
- British Airways, which expects to cut 12,000 jobs
- BP, which is slashing 10,000 jobs worldwide
- And British Gas owner Centrica which is cutting 5,000 positions.
In normal times, the employment rate tells you most of what you need to know about jobs.
But these are not normal times.
With the furloughing scheme keeping people employed, if not working, we have to look elsewhere to get a picture of what’s happening.
It’s like building a jigsaw, but with pieces from different boxes: surveys, payroll data, jobs advertised, three-month trends and even looking at week-on-week changes.
The picture it builds is different to the headline employment figure but perhaps not surprising: Serious pressure on jobs during lockdown.
Last week, the ONS revealed the UK economy shrank by a 20.4% in April – the largest monthly contraction on record – as the country spent its first full month in lockdown.
That is three times greater than the decline seen during the whole of the 2008 to 2009 economic downturn.
Meanwhile, the latest furlough figures from HMRC indicate that more than a quarter of the UK workforce is having 80% of their monthly wages, up to £2,500, paid by the government, while they are temporarily off work. Their employer, which chooses whether or not to furlough workers, can top up the remaining 20% if it wishes.
The Treasury also said there had been 2.6 million claims for support grants from the self-employed.
Minister for Employment, Mims Davies, said: “Today’s figures are starting to show the impact of Covid-19 on our economy, but our furlough scheme, grants, loans and tax cuts have protected thousands of businesses and millions of jobs, setting us up for recovery.
“Already our nationwide network of work coaches have moved in to support jobseekers across sectors and match them with employers who are recruiting. By responding to the needs of communities across the UK they will be at the heart of our revival and renewal.”