UK employment rises despite end of furlough scheme

The number of people employed in the UK rose in the month after the closure of the government’s furlough scheme, according to official data that will reinforce the case for the Bank of England to raise interest rates to rein in inflation.

The figures, released on Tuesday by the Office for National Statistics, are the first hard evidence that the labour market withstood the expiry of the wage subsidy scheme, which was still supporting more than a million jobs in its final weeks.

The number of payrolled employees rose by 160,000 to 29.3m between September and October, a strong increase even though September’s total was revised down slightly.

Surveys already suggest that most furloughed workers returned to work in October, with only a small share losing their jobs or choosing to leave the workforce. The Bank of England’s governor, Andrew Bailey, told MPs on Monday that unemployment looked “lower than our forecast would imply”.

The state of the labour market will be one of the most important factors guiding policymakers’ interest rate decision when they meet in December, with markets already betting they will pull the trigger on the first increase since 2018.

The ONS figures also showed the employment rate averaged 75.4 per cent in the three months to September, up 0.4 percentage points from the previous quarter, while unemployment fell 0.5 percentage points to 4.3 per cent — a bigger drop than analysts had expected.

There was also evidence the UK was sharing in the wave of resignations that swept the US, as workers took advantage of a buoyant labour market: the ONS said job to job moves were at a record high, driven by resignations, not dismissals. The number of vacancies also reached a new record high in the three months to October.

Rishi Sunak, chancellor, said the figures were “testament to the extraordinary success of the furlough scheme”.

However, business groups said labour shortages were putting the economic recovery at risk, with the British Chambers of Commerce saying chronic staff shortages were “intensifying” and could force companies into “a more long-lasting decline in their operating capacity”.

Some analysts cautioned that furloughed workers might have returned to their jobs on fewer hours and lower pay than they would have liked, while much of the increase in employment was due to a rise in part-time work and by young people taking jobs on zero-hour contracts.

Samuel Tombs, at the consultancy Pantheon Macroeconomics, noted that overall employment had not risen as fast as the payroll figures suggested, because many people previously counted as self-employed were now on payroll.

But Tony Wilson, director of the Institute for Employment Studies, said: “We’ve never seen jobs being filled at a faster rate than now . . . yet despite this we’re seeing labour shortages across all parts of the economy and a tighter jobs market than at any time in the last 50 years.”

He added that shortages were in large part due to a drop of almost a million people leaving the workforce, driven by early retirement and by more young people choosing to stay in education.

What is less clear is the extent to which labour shortages are driving up wages — the big issue for monetary policymakers, who want to prevent a temporary rise in inflation turning into a persistent wage-price spiral.

The ONS headline measure of growth in weekly earnings, excluding bonuses, showed annual pay growth was 4.9 per cent among employees in the three months to September — implying real-terms earnings growth of 2.2 per cent, stronger than pre-pandemic rates.

The ONS cautioned that this figure was distorted, however, by temporary pandemic-related effects. After adjusting for these effects, headline earnings growth could be “as low as 3.4 per cent”, the ONS said — implying that earnings outstripped inflation over the period in question, but could fall behind cost of living increases in the coming months.

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