ITV News Business and Economics Editor Joel Hills reports on why the success of the furlough scheme could mean a rise in interest rates from next month
What happened to the 1.1 million jobs that were still furloughed when the Coronavirus Job Retention Scheme closed at the end of September? The answers to this question matter greatly, not least for the people who were having their incomes subsidised by the taxpayer. Inflation is running high and the Bank of England is preparing to raises interest rates. It delayed doing so this month because it wants a better understanding of the impact of the end of furlough. The early signs are that the majority of people have remained in work.
According to the Office for National Statistics (ONS), the claimant count fell by 14,900 in October and the number of people on company payrolls swelled by 160,000 and are now above pre-pandemic levels. Redundancies in September didn’t rise.
The Chancellor welcomes the latest unemployment figures
“Today’s number are testament to the extraordinary success of the furlough scheme and welcome evidence that our Plan for Jobs has worked,” boasts the Chancellor, Rishi Sunak, with some justification. The rate of unemployment has now fallen for nine consecutive months. Across the summer record numbers of people flowed into new jobs.
The flip-side to all this success is that the labour market is tight and, in places, companies complain they cannot get the staff they need. The number of vacancies in the economy has reached another record high of 1.2 million. The number of unemployed people per advertised job has fallen to a level last seen in 1971. This is a problem, one that threatens to restrict growth and puts upward pressure on inflation, which is already high and rising.
There are signs that wage growth is losing momentum. The ONS calculates that wages, excluding bonuses and adjusted for all the distortions lockdown caused, eased to as low as 3.4% in September.
Inflation is expected to climb to almost 4% in October. A squeeze on living standards is about to begin.
The Bank of England’s assumption was very few furloughed staff would end being made redundant. That assumption looks sound. This being the case, the Bank has indicated that it is likely to raise interest rates to ensure inflation is contained. The next set of ONS data will be published on December 14th and then it’s decision time. “An interest rate rise in December still is not a done deal,” says Samuel Tombs from Pantheon Macro. He points out that we still don’t know how many furloughed staff went back full-time, how many accepted pay cuts or how many will still end up surplus to requirements.