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Monday 21 September 2020
by Jackie Emson

Coronavirus crisis: unemployment and redundancies begin to rise by Ruth Lea, Economic Advisor for Arbuthnot Banking Group

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest labour market data and other economic data:

• The unemployment rate rose to 4.1% in the three months to July, compared with 3.9% in the previous three months and 3.8% a year earlier; the increase was concentrated in the young. Significantly, the ONS single month estimate for July (4.4%) was higher that June’s (3.8%) and May’s (4.0%).

• Redundancies increased by 48,000 (QOQ) in the three months to July, to be 58,000 higher (YOY). Even though redundancies were still historically low, well below that seen during the 2008 downturn, both the quarterly and annual changes were the largest seen since 2009.

• Employment weakened in the three months to July, driven by workers aged 16-24 years and those aged 65 years and over.

• Vacancies remained weak in the three months to August, but were up on the record low reported in the three months to June.

• The quarterly and annual reductions in hours worked in the three months to July were still large but were improved compared with the three months to June.

• Earnings growth remains subdued, partly reflecting the impact of the furlough scheme, but nominal regular earnings were positive in the three months to July (+0.2% (YOY)) compared with -0.2% (YOY) in the three months to June.

• Retail sales edged up by 0.8% (MOM) in August, to be 4.0% higher than pre-lockdown February.

• CPI inflation fell to 0.2% (YOY) in August, partly reflecting the effects of the Eat Out to Help Out Scheme.

• Producer prices inflation (both output and input) remains negative, reflecting lower oil prices.

Concerning central banks:

• The Bank of England left policy unchanged at its September meeting. There remain high expectations of an increase in QE at the November meeting. The markets continue to expect negative interest rates.

• On the economy, the Bank noted that recent economic data had been a little stronger than expected in August. But they warned of the continuing risks to the recovery of the Covid-19 pandemic.

• The Fed also left policy unchanged at its September meeting. The economic forecasts were upgraded, with the projected fall in GDP in 2020 reduced to 3.7% compared with a fall of 6.5% in June. The projected appropriate Fed Funds rate remained unchanged at 0.1% (0-0.25%) throughout the forecast period, to 2023Q4.

Concerning the OECD’s interim forecast:

• The OECD revised its expected global GDP fall in 2020 to 4.5%, compared with a 6.0% decline in June. The revision masked “considerable differences across countries, with upward revisions in China, the United States and Europe, but weaker-than-expected outcomes in India, Mexico and South Africa”.

• The fall in US GDP was revised to 3.8% for 2020 (7.3% in June) and China’s GDP was expected to grow by 1.8% in 2020 (a fall of 2.6% in June).

• The decline in Eurozone GDP was revised to 7.9% for 2020 (9.1% in June), with Germany’s economy to shrink by 5.4%, France’s by 9.5% and Italy’s by 10.5%.

• Concerning the UK, the OECD now expects a GDP decline of 10.1% in 2020 (11.5% in June).

Brexit update:

• MPs backed the Internal Market Bill last week by 340 votes to 263.

Ruth Lea said “The ONS’s latest labour market data showed increases in both unemployment and redundancies, though they were still quite muted. However, the data are deceptive, as the furloughed workers scheme continues to support employment and restrain unemployment rises. And there are expectations of rapid rises in both unemployment and redundancies in coming months, partly reflecting the ending of the furlough scheme at end-October. Even the relatively optimistic Bank forecasts suggest the unemployment rate will rise to 7.5% (2.6 million) in 2020Q4, compared with 4.1% (1.4 million) in the three months to July”