Job vacancies are soaring, unemployment is down and redundancies remained low ahead of the furlough scheme ending. Two weeks before delivering his landmark post-lockdown budget, the signals appear at first glance to be encouraging for Rishi Sunak.
On the surface, Britain’s labour market seems to have avoided the worst damage from Covid-19. The number of workers on company payrolls has risen back above pre-pandemic levels to reach a record 29.2 million, while unemployment per job vacancy has collapsed.
For the chancellor, the figures demonstrate the success of the government’s “plan for jobs”, with more than £70bn spent on furlough to confound forecasts made last year for unemployment to hit 12%.
Scratch a little deeper, however, and not everything is running smoothly in Britain’s labour market.
Far from a picture of health, job vacancies hitting a record high of almost 1.2m in September is a symptom of labour shortages stifling the UK’s economic recovery from Covid, worsened by the ongoing effects of the pandemic and Brexit making it tougher for firms to recruit staff from the EU.
Instead of tightness across the labour market, there are pockets of strength and weakness. Much of the growth in job vacancies has been fuelled by low-paying roles where firms once relied on migrant labour; such as in logistics and warehousing, hospitality, and care.
Opportunities elsewhere are harder to come by; activity in travel, leisure, the arts and other consumer-facing sectors is still below pre-pandemic levels.
Reflecting these mismatches in the jobs market, as many as 1.3 million people were still on furlough in September before the government support scheme was closed. It will take several months to gauge whether Britain’s supposed jobs-creating machine has sufficiently cranked into gear, while union leaders warn government support is required to smooth the transition.
Economists said payroll data misrepresents the picture of strength, due to a strong flow of people from self-employment to salaried roles during the crisis. The figures do not capture people who work for themselves, those in informal employment, and may double-count some workers who have more than one job.
Britain’s headline unemployment rate has fallen in recent months, but is still higher than on the eve of the pandemic, up from 4% to 4.5%. The number of people in a job remains down by 660,000, while hundreds of thousands more people have stopped looking for work altogether; having either chosen to stay in education until more opportunities arise or drifting into early retirement.
Headline pay levels are rising, with average weekly pay 7.2% higher in June-August than in the equivalent three months of 2020, down from the previous reading of 8.3%. On an underlying basis, stripping out distortions caused by the pandemic, the ONS said pay was rising at between 4.1% and 5.6%. That compared with a rate of about 3% just before the crisis struck.
However, with inflation likely to soar above 4% this winter, earnings may only just about manage to outpace a dramatic rise in the cost of living. At the same time, growth in productivity – the measure of economic output for each hour of work – remains low, raising questions over the sustainability of healthy wage increases.
So while there are signals of strength for Sunak to highlight at the budget, there are inconsistencies the chancellor will also be called on to address.
