UK employment rises yet remains below pre-pandemic level

The UK labour market turned a corner in the first quarter of 2021, with payroll employment rising, unemployment falling faster than expected and hiring accelerating in the run-up to the economy reopening.

The unemployment rate averaged 4.8 per cent between January and March, down from 5.1 per cent in the previous quarter, the Office for National Statistics said on Tuesday.

The employment rate rose by 0.2 percentage points to 75.2 per cent, but remained 1.4 percentage points below its pre-pandemic level.

Data from HM Revenue & Customs showed the number of payrolled employees increased at the sharpest pace since the start of the pandemic in April, although it remains 772,000 below pre-pandemic numbers, with job losses concentrated among young people. The redundancy rate has also fallen from the high reached last autumn, although it is still running above its pre-coronavirus rate.

“While sadly not every job can be saved, nearly 2m fewer people are now expected to be out of work than initially expected,” Chancellor Rishi Sunak said in response to the data.

“The labour market has entered a new phase, starting to recover . . . as the economy reopens,” said Hannah Slaughter, economist at the Resolution Foundation think-tank. She estimated that with furlough continuing, there was still a gap of 4.2m positions to fill before employment regained pre-pandemic levels.

“The jobs market is standing firm,” said Tej Parikh, chief economist at the Institute of Directors, a business group. He added that although further job losses were likely as the furlough scheme unwound, they would be offset by hiring as businesses scaled up operations. He also called for the government to bolster its retraining initiatives to help plug skills shortages.

The improvement in overall labour market conditions masked a big rise in long-term unemployment, a continuing slump in the graduate jobs market and emerging shortages of labour in certain sectors such as hospitality, where employers are scrambling to rehire workers they previously let go.

The ONS said that both the unemployment and employment rates of young people had fallen over the past quarter, suggesting they were staying in education without looking for work.

“You don’t have to look too far to see the damage caused by a year of lockdowns and disruption,” said Tony Wilson, director of the Institute for Employment Studies. “With many firms reporting difficulties in filling jobs . . . government and employers will need to do more to bring the long-term unemployed back into work.”

Kallum Pickering, an economist at investment bank Berenberg, forecast that unemployment would rise to 5.4 per cent if only 5 per cent of the estimated number still furloughed in March eventually lost their jobs, adding: “The final outcome may be slightly worse than this.”

Despite the surge in hiring, there were few signs of labour shortages driving up pay growth to unsustainable levels. The ONS said underlying annual growth in total pay — after adjusting for the fall in the number of low paid jobs — averaged about 2.5 per cent in January to March, while regular pay, excluding bonuses, grew 3 per cent.

Samuel Tombs, an economist at consultancy Pantheon Macroeconomics, said fears of sustained inflation were overblown, since most workers who had remained in continuous employment would see “very meagre” pay rises in 2021, with the smallest rise since 2013 in the national minimum wage and the pay of most public sector workers frozen.

ONS estimates of unemployment and employment do not yet take in planned changes to its methodology to reflect recent changes in international migration and to the way it conducts its surveys.

The agency said on Monday that these revisions would cut the employment rate by 0.2 percentage points, increase the unemployment rate by the same amount and show inactivity 0.1 percentage point higher — with joblessness higher than its current figures suggest.