The official UK unemployment rate remained near all-time lows in June, confounding expectations for a rise in jobless numbers and “lag[ging] behind the reality on the ground.”
The Office for National Statistics (ONS) said on Tuesday that the 3-month unemployment rate remained near record lows at 3.9% in June. The single-month rate fell from 4.1% in May to 3.8% in June.
Economists had expected unemployment to rise to 4.2% in June, up from 3.9% in May.
However, more experimental real-time data released by the stats body showed a worsening outlook for the jobs market.
Payroll data pointed to another 80,000 jobs lost between May and July. The number of people moving from unemployment to “inactivity” also reached a record high, suggesting many people who were out of work had stopped looking for new jobs and were therefore missed by the official headline unemployment stat.
Employment declined by 220,000 between April and June, the biggest quarterly decline since mid-2009. The decrease was driven by a fall in work rates for the over-65s, the self-employed, and part-time workers.
However, a record increase in full-time workers helped to offset the impact. The ONS said the employment rate declined by 0.2 percentage points to 76.4%.
137,000 jobs were lost in hotels and hospitality industries between April and June, but the impact was largely offset by an increase in public sector jobs, particularly in public administration.
The headline unemployment rate remained stable “because of increases in people out of work but not currently looking for work,” the ONS said.
“Many people losing their jobs did not immediately seek new work, due to the pandemic,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, wrote in a note this week. “A person must have actively sought work in the past four weeks and be available to start in the next two weeks to be classified as unemployed.”
Suren Thiru, head of economics at the British Chamber of Commerce, said: “While the headline data continues to lag behind the reality on the ground, the decline in the number of employees on payrolls and hours worked is further evidence of the damage being done to the UK labour market by the Coronavirus pandemic.”
The ONS also recorded a record decline in total hours worked as millions were furloughed. The number of weekly hours worked on average in the 3 months from April to June fell by 203.3 million to 849.3 million.
Economists have raised issues with the ONS data collection methods. The unemployment rate is based on a representative survey of the UK’s labour force, rather than a comprehensive audit of the jobs market, and experts say the model may no longer be reflecting the true state of the economy.
“There are clear sampling issues with the ONS’ numbers,” Sanjay Raja, UK economist at Deutsche Bank, wrote in a note last week. “Survey and vacancy data are all consistent with a marked rise in unemployment.”
The ONS admitted its methodology “was not designed to deal with the changes experienced in the labour market in recent months”.
Recently more attention has been paid to payroll data, which gives more of a real-time indication of job losses across the economy. Tuesday’s data showed that there were 730,000 fewer paid employees in July compared to March. That translates to 80,000 extra job losses since last month’s report.
The claimant count, a broader measure that includes the unemployed and those required to seek work to qualify for benefits, rose slightly to 2.6 million. The claimant count has risen by 116% since March.
Experts believe unemployment will rise in the coming months as the government’s furlough scheme comes to an end in.
“People still count as employed if they are temporarily away from a job and receiving no pay and if they are furloughed using the Coronavirus Job Retention Scheme,” Tombs wrote. “The ONS estimates that 7.5 million people — 27% of employees — fell into these two categories in June.
“A wide range of indicators suggest that job losses will crystallise from August, when employers must start to cover some of the costs of furloughed staff.”
A survey published on Monday found a third of businesses planned to cut jobs in the coming months. Private sector forecasts compiled by the government suggest unemployment will rise to 8% by the end of the year.
Companies have already announced tens of thousands of job losses across the country since the pandemic first struck. However, those announcements can often take time to filter through into official statistics as firms work through redundancy processes.
Economists at Goldman Sachs have predicted the rise in unemployment will be “short lived.” However, three former chancellors and the Bank of England’s chief economist have all raised concerns that the UK could face 1980s-levels of “systematic” unemployment as a result of the COVID-19 pandemic.