UK jobless rate rises to 4.1% as virus effects take hold

The number of employees on payrolls has fallen by about 695,000 since March

A pedestrian walks through a street City of London square mile financial district in London. The number of people claiming jobless benefits in the UK has risen to 2.7 million, an increase of 121 per cent since March. BloombergShow less

Britain’s unemployment rate jumped above 4 per cent in the second quarter of the year as the effects of the Covid-19 pandemic took their toll on the country's job market, according to UK government data.

The rate rose to 4.1 per cent in the three months to the end of July from 3.9 per cent the previous quarter, the Office for National Statistics said in a statement on Tuesday – the first increase since the coronavirus lockdown began in March.

“Some effects of the pandemic on the labour market were beginning to unwind in July as parts of the economy reopened. Fewer workers were away on furlough and average hours rose. The number of job vacancies continued to recover into August, too,” said Darren Morgan, director of economic statistics at ONS.

“Nonetheless, with the number of employees on the payroll down again in August and both unemployment and redundancies sharply up in July, it is clear that coronavirus is still having a big impact on the world of work.”

While restaurants, shops and pubs started to reopen in July after the three-month lockdown, many employers fear a second shutdown as infections in the country rise and the government rolls out new movement restrictions to curb the spread of the disease. On Monday, a further 2,621 new cases were reported and nine people died, according to worldometer.

Early data for August is also gloomy with the number of employees in the UK on payrolls down by about 695,000 from March compared to 659,000 in July, according to the ONS. The number of people claiming for jobless benefits has risen to 2.7 million, an increase of 121 per cent since March.

Over the second quarter, the ONS noted a large drop in the number of young people in employment, with those aged 16 to 24 years decreasing by 156,000 to 3.63 million. While redundancies were still historically low across all age groups, both the quarterly and annual changes are the largest seen since 2009 increasing by 58,000 on the year and 48,000 on the quarter to 156,000.

This has placed pressure on the government to extend its furlough programmes, which has helped companies retain about 10 million workers since March and is set to conclude on October 31.

On Tuesday, the UK’s opposition leader Sir Keir Starmer will urge the UK government to replace the job retention scheme – which pays employees on leave 80 per cent of their pay up to a maximum of £2,500 - in a virtual address at the Trades Union Congress’ annual conference. The Labour leader will also call for a ban on “firing and re-hiring” to avoid the “scarring effect” of “mass unemployment” according to UK media reports, and propose targeted support for heavily affected sectors.

Analysts expect the end of the furlough scheme to cause a sharp rise in the unemployment rate.

"With workers continuing to lose their jobs, as shown by the rising unemployment rate as well as the ever growing number of payrolls lost, it is clear that the negative labour market impacts of the coronavirus crisis are far from over," said

Josie Dent, senior economist at the Centre for Economics and Business Research. "We expect [unemployment] to peak at 8.9 per cent in Q4, before dropping back again in 2021 as the UK economy recovers from the crisis."

While second-quarter figures show an increase in the unemployment rate and a rise in the number of redundancies, the employment rate actually rose and economic inactivity rate has fallen.

Some sectors, such as retail, benefited from the nationwide lockdown because consumers were forced to shop online. Earlier this month, British supermarket Morrisons said it was hiring about 6,000 new permanent staff to meet booming online demand.

Meanwhile, US e-commerce company Amazon is rolling out 7,000 new permanent jobs in the UK by the end of the year and Tesco, Britain's biggest retailer, is planning 16,000 new permanent roles.