Britain facing severe unemployment crisis

Despite fewer redundancies in the UK last month, economists warn unemployment is on course to rise. Around 650,000 people lost their jobs between March and June but the pace of decline slowed in June, with the bulk of job losses occurring around the onset of lockdown restrictions.

June’s drop of just over 74,000 was markedly smaller than April’s 450,000 according to figures from the Office for National Statistics (ONS). However, Yael Selfin, chief economist at KPMG said the data represented the “calm before the storm”. The unemployment rate unexpectedly beat expectations to stay at 3.9 per cent in the three months to May.

Selfin said: “As the Job Retention Scheme unwinds in coming months, the full impact of the recession on unemployment is likely to be revealed.” Chancellor Rishi Sunak has said the scheme, which sees the government pay 80 per cent of furloughed employees’ wages, will wind down in October. A number of firms have already announced job cuts. British Chambers of Commerce reported 29 per cent of companies expect to lay off staff in the third quarter.

“It’s clear that we’re in the middle of a severe economic downturn, but we will never accept unemployment as an unavoidable outcome,” the Chancellor said. Last week Sunak unveiled further measures to steam an anticipated surge in employment, including the introduction of the Kickstart Scheme. The £2bn scheme will see hundreds of thousands of state-funded jobs for 16 to 24-year olds who are at risk of unemployment.

The ONS data released also shows that the furlough scheme led to a record low in hours worked between March and May. Similarly, there was a related fall in demand for workers.

“The jobs market appears resilient on the surface, owing largely to a modest rise in redundancies,” said Gerwyn Davies, senior labour market adviser at CIPD. “However, the sting in the tail is the record fall in demand for workers – especially in the worst-affected sectors such as accommodation and food services – and the sharp drop in the number of hours worked.”

Adding: “The situation can only deteriorate rapidly over the rest of the summer and into the autumn as young people enter the labour market.” Economists predict a wave of unemployment as the government’s job retention scheme is gradually wound down. The scheme pays the wages of workers who may otherwise be laid off and supports more than 9m jobs.

The Chancellor has also confirmed a £30bn stimulus plan to protect jobs in the autumn. But James Reed, chairman of recruitment firm Reed, said that even with all these support measures “the labour market is on a knife-edge” and “the risk of mass unemployment remains high”.

And ING economist James Smith warned there is “little doubt” that unemployment will increase in the coming months. “The gradual unwinding of the job retention scheme over the summer is being seen as a potential catalyst for firms to begin making changes,” he said.