UK unemployment expected to hit levels last seen in 1980s

Business

Shoppers queue outside Zara in Belfast, northern Ireland, Monday, June 15, 2020. After three months of being closed under coronavirus restrictions, shops selling fashion, toys and other non-essential goods are being allowed to reopen across England for the first time since the country went into lockdown in March. (Liam McBurney/PA via AP)

LONDON (AP) — Unemployment in the U.K. is widely expected to hit levels not seen since the mid-1980s over the coming months as a result of the coronavirus-induced recession.

Though the number of people officially labelled as unemployed held steady in April, the first full month after lockdown, analysts said Tuesday it’s only a matter of time before the full impact of the economic collapse is seen.

That’s because the British government’s efforts to insulate the jobs market from the economic damage of the lockdown is coming to an end. Under its Job Retention Scheme, it has been paying up to 80% of the salaries of workers retained, up to 2,500 pounds ($3,150) a month.

Many companies have held off from cutting jobs, with 1.1 million employers so far taking advantage of the scheme to furlough 9.1 million people at a cost to the government of 20.8 billion pounds ($26 billion).

Given the colossal costs involved, Treasury chief Rishi Sunak has said that from August, firms will have to start making contributions, and that the scheme will close two months later.

The end to the scheme has raised concerns of a spike in unemployment to potentially more than 3 million for the first time since 1987. In April, the internationally recognized measure of unemployment in the U.K. stood at 1.34 million, or 3.9%, according to figures published Tuesday by the Office for National Statistics.

Some of those furloughed workers will have returned to their jobs on Monday, as a result of the reopening of nonessential shops in England for the first time in nearly three months.

But it’s clear that not everyone will be able to sidle back given that many firms are likely to go bust as a result of the lockdown. Figures last week showed the British economy shrank by a massive 20% in April alone.

“While the policy is softening the blow for workers that have fallen on hard times in all industries, some proportion of the furloughed workers will end up unemployed in time, especially in services industries like retail and travel where demand will remain structurally lower after the pandemic has run its course,” said Kallum Pickering, senior economist at Berenberg Bank.

A deeper dive into the figures from the statistics agency shows that big changes are imminent. In particular, it noted that the number of people in the U.K. claiming job-related benefits increased by a monthly 23.3% in May to 2.8 million. The so-called claimant count — which includes both people who work on reduced income or hours and those who are actually unemployed — was 125.9% higher than in March, the month when lockdown restrictions were imposed.

“If the public health crisis is just starting to ease, today’s figures show that the unemployment crisis is only just beginning,” said Tony Wilson, director of the Institute for Employment Studies.

He said that unemployment is rising faster than during the Great Depression in the 1930s and is set to top 3 million this summer.

Unions and employers are urging more support from the government. Sunak is expected to announce a big fiscal stimulus in the coming weeks.

“Unemployment falls unevenly across society and leaves scars that last generations,” said Matthew Percival, director of people and skills at the Confederation of British Industry.

“The urgent priority must be creating inclusive jobs today, by turbo charging the sustainable industries of tomorrow,” he added.

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Follow AP coverage of the virus outbreak at https://apnews.com/VirusOutbreak and https://apnews.com/UnderstandingtheOutbreak

Copyright 2020 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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