Unemployment remains historically low but a second wave looks likely

Credit: PA

Unemployment Rate Hits 4.5%”. Once again, the headlines are deceptive.

Given the size of the recession the UK has experienced, it is astonishing that the rate isn’t higher.

The number of people unemployed rose to 1.5 million in the three months to August, but the headline rate remains low, both by international and UK historical standards. During the financial crisis, it peaked above 8%.

The official labour market data, published this morning, is fascinating.

It confirms who has been losing their jobs - young people, self-employed men and women working part-time have suffered disproportionately (the unemployment rate of 18-24 year old men is a brutal 15.7%) - and how hard it is to find a new work (there are now almost four unemployed people chasing every vacancy).

But the official data it is also hopelessly out of date. Like photos from the summer holidays, the ONS’s figures feel like they were taken an eternity ago.

Events are moving at pace.

In a matter of weeks the economic recovery, which had at times looked hearty, has lost its way, as restrictions to constrain the spread of the virus have been reimposed.

As of the end of August there were almost 3 million jobs protected by the Job Retention Scheme which ends this month.

The Institute for Public Policy Research (IPPR), a think-tank, reckons Chancellor Rishi Sunak's new Job Support Scheme will probably only save 230,000 of those jobs.

If the IPPR is right then unemployment will rise very quickly in the run up to Christmas.

Credit: IFS

And a second wave of redundancies is coming but it is no surprise that the chancellor is trying to peg-back taxpayer support.

The furlough scheme has avoided mass unemployment, thus far, but done so at great expense.

Government spending during the pandemic has accelerated off over the horizon.

In March, the government was forecast to borrow £55 billion this year.

The Institute for Fiscal Studies (IFS) calculates it’s now likely to borrow closer to £350 billion - a record, outside of world wars.

Credit: IFS

And the pressure to continue spending is high, from furlough support to track and trace to PPE to extra resource for the NHS.

Last week the chancellor promised to “always balance the books”.

“A safer bet would probably be to say this Conservative government will never balance the books,” quips Carl Emmerson, deputy director at the IFS.

“And I wouldn’t advise...that they try any time soon”.

The bounce-back has lost its bounce and IFS judges that the government should continue spending to revive our fortunes.

However it concludes that substantial tax rises are “almost inevitable” when this crisis finally ends.