On the data front we have the latest unemployment numbers from the UK this morning, for the three months to November, coming up shortly.
In his spending review announced in November, Chancellor of the Exchequer Rishi Sunak forecast that UK unemployment could well peak in the second quarter of 2021 at 7.5 per cent, and to that end the Chancellor said that he would put aside £3bn to deliver a new 3-year restart program for those longer term unemployed, in order to try and get them back into work or training.
“While this was well received at the time, along with the furlough scheme which was extended into April it is likely to have come too late for a lot of people in vulnerable jobs, given that a lot of employers decided to make a start on reducing headcount before the new tighter lockdown measures were announced in November, December, and at the beginning of this month,” Michael Hewson, chief market analyst at CMC Markets UK, tells City A.M. this morning.
“With an economic reopening now put back even further, probably into Q2 of this year at the earliest, it is quite likely that further job losses will come in the weeks and months ahead, even if the government does come up with some extra help in any March budget,” Hewson added.
The Chancellor is already under pressure to bring forward any measures from the March budget in order to give businesses a little bit more longer-term certainty around their spending decisions over the next six months, at a time when a good number of them are already close to collapse.
“All of the talk of possible tax rises in the March budget is unlikely to help employer sentiment either, and is something that Rishi Sunak needs to put a stop to. There will be plenty of time to think about how to pay for all of this extra borrowing, however now is not it,” Hewson noted.
“Business needs confidence to keep its furloughed staff on the payroll a little bit longer. If they think their costs will go up, they either won’t bother, or could even struggle to survive into the summer,” he added.
If the Chancellor doesn’t want unemployment to surge over the summer, he will do well to support struggling businesses a little bit longer. In the long run it could well pay off, Hewson noted.
The ILO measure of unemployment for November is expected to show an increase from the 4.9 per cent level seen in October and move above 5 per cent for the first time since April 2016, before the Brexit referendum, with some expressing surprise it hasn’t actually come in higher sooner, even accounting for furloughed workers.
“One reason for the still fairly low reading is that the ILO measure is very much a lagging indicator, and isn’t a particular useful indicator, not only because it doesn’t include furloughed workers, but it also doesn’t include overseas workers who may well have left the UK to return to their home countries, where in most cases the incidences of Covid-19 cases are lower,” Hewson explained.
The monthly jobless claims numbers are probably a more accurate reflection of the labour market, with these at 7.4 per cent in November, and expected to move up to 7.5 per cent in December.