Continued fall in unemployment rate obscuring ‘true scale’ of Covid-related jobless

The latest figures from the Office for National Statistics (ONS) revealed that there was a quarterly increase in the employment rate of 0.5 percentage points, to 75.2% over the same period.

In June to August, the number of job vacancies was 1,034,000, which is the first time vacancies have risen to above 1m since records began, and is now 249,000 above its pre-pandemic January to March 2020 level.

However, Paul Craig, portfolio manager at Quilter Investors, said it remained “unclear” for just how long job creation can be sustained.

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“The end of this month sees the withdrawal of the furlough scheme, and with 1.6m people still having their wages subsidised in one shape or another, it is unfortunately unlikely all of these people will be kept on into full-time employment,” he said.

“Despite the success of the furlough scheme and the mass unemployment that many had feared being prevented, the jobs market remains very much in recovery and below pre-pandemic levels.”

The ONS also reported that the number of payroll employees has returned to pre-pandemic levels after another monthly increase in August, up 241,000 to reach 29.1m.

“As has been widely reported, the UK has somewhat of a skills shortage, with many industries reporting hiring difficulties and lack of available labour,” Craig added. “With Covid following close on the heels of Brexit there is uncertainty to whether the UK will be able to match those seeking work with the jobs that are available.”

Robert Alster, CIO at Close Brothers Asset Management, called the end of the furlough scheme “a fig-leaf of epic proportions, obscuring the true scale of Covid-linked unemployment”.

“Conversely, there is a well-reported rise in vacancies, putting upward pressure on wages, as businesses struggle to hire enough staff. If this labour market tightness continues to push up wages, the Bank of England will face increasing calls to act.

“However, the Bank’s current response is conditioned on there being no uptick in unemployment, which leaves policymakers open to any surprise downside revelation,” Alster said.

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Chief executive of YOU Asset Management Derrick Dunne said that the disparity between unemployment numbers and the amount of job vacancies available is “the real story”, and added that this is a consequence of the impact of Brexit, as well as people choosing to take career breaks.

Next steps for the central bank

Quilter Investors’ Craig said that, for now, the BoE will see the reduction in the unemployment rate as “a positive and another step towards its goal to reduce the mass of stimulus it has been providing”.

Premier Miton Monthly Income fund manager Emma Mogford, added that the BoE will be looking to see if unemployment rises next month after the end of furlough. 

“If, however, it continues to fall, that should provide a boost to sterling and interest rate sensitive stocks,” she said.

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