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15 September 2020

UK Unemployment Sees Summer Increase

Ben Staniforth, Investment Research Analyst, Redmayne Bentley

Unemployment across the UK rose to 4.1% in the three months to July, up from 3.9% previously. This takes the total number of UK workers that have lost their job since the lockdown began in March to 695,000, including 156,000 young people aged 16-24, in what can only be described as a devastating blow to the country. The government’s furlough scheme has certainly propped up the employment market since its inception in early March, providing a regular income to those who would have been out of work due to the pandemic. This has had the knock-on effect of also supporting other sectors of the economy, such as housing and consumer staples, which rely heavily on consumer spending and have remained resilient. However, with the furlough scheme set to end in October, it is clear that many firms are readying layoffs and, as a result, we would expect to see the unemployment rate jump shortly thereafter.

The pressure will soon turn to the Treasury and its ability to further mitigate job losses, with many business and political leaders calling for a replacement to the furlough scheme in order to prevent mass unemployment. However, given the significant levels of borrowing that have taken place since March to fund the various schemes created by the government, Chancellor Rishi Sunak the unenviable task of balancing the country’s finances against the risk of further unemployment. As such, we would expect to see a somewhat toned-down version of the furlough scheme, perhaps with the government providing lower levels of employees’ salaries in order to ensure that, along with personal finances, other sectors of the economy are not severely damaged for an extended period.

Across the pond, the unemployment rate in the US actually fell from 10.2% to 8.4%, as 1.4 million people started work in August. The employment market has staged a staggering comeback from the near 15% unemployment rate in April as looser lockdown restrictions and the re-opening of the economy allowed firms to start hiring once again. The difference in strategies between the US and UK has produced near opposite returns for employment. As the COVID-19 crisis hit, the United States’ lack of an expansive job retention scheme caused the unemployment rate to skyrocket, while, thanks to its own furlough scheme, the UK’s unemployment rate remained steady.
UK Unemployment Sees Summer Increase
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