Published: June 20th, 2020
British payrolls fell by more than 600,000 people in April and May as the COVID-19 lockdown hit the labour market, while the number of job vacancies took the deepest two-month plunge ever recorded, according to Office of National Statistics (ONS) data released this week.
While the official jobless rate remained surprisingly low at 3.9 per cent, economists have pointed out this was mainly due to Westminster’s massive ‘furlough’ job retention scheme, plus a classification glitch that meant many unemployed people weren’t counted because they couldn’t look for work under lockdown.
The same period saw a record slump in the UK’s overall economic output.
Economists at London’s Resolution Foundation told reporters this week that British unemployment will almost certainly ‘get worse before it gets better.' They also pointed to concerns about a ‘second wave’ surge in unemployment when the government’s furlough scheme expires at the end of October.
The government, they said, will need to create a bold package of support measures to help furloughed workers before their impending unemployment day arrives.
Sterling has suffered sharp drops this week, part of a steady decline seen since 9th March.
Forex market analysts say the ONS figures have only added fuel to a rising fire of negative sentiment.
Many large employers like airlines and auto manufacturers have announced permanent redundancies thanks to the restrictions on travel and commercial activity caused by COVID-19 lockdown measures.
Figures from UK tax filings showed the number of workers on employer payrolls fell by more than 610,000 in April and May. Job vacancies suffered the steepest decline posted since the ONS began tracking them in 2001, down by 340,000.
The number of people claiming Universal Credit also made a larger-than-expected jump to reach 2.7 million in May – a rise of 528,900 people and more than double March’s figure.
The UK’s embattled conservative government has been attempting to balance the risk of a new upsurge in COVID-19 infections with the need to kick-start the economy. Prime Minister Boris Johnson even ordered a review of the two-metre social distancing rule this week, a move calculated to shore up political support in the business community.
Johnson and finance minister Rishi Sunak are also looking at suspending social security payments by employers, and tax incentives to encourage smaller companies to hire workers.
The government’s furlough scheme currently covers more than 9 million jobs, and its impact was clearly felt in the ONS figures. The number of hours worked took the steepest fall on record while pay rates rose at their slowest pace in over five years. Furloughed workers only receive 80 per cent of their regular pay stub.
The pound may hit more turbulence against the greenback and euro as markets await the long-term impact of a meeting this week between Johnson and European Commission President Ursula von der Leyen to hammer out a way forward on the looming Brexit trade negotiations.
The two sides are expected to agree that there will be no extension of the Brexit transition period, scheduled to expire on 31st December. That will mean that the EU and UK will need to reach a deal in under six months to avoid Britain leaving the bloc without a trade deal.
Johnson has previously told EU leaders that the UK’s position is to see Brexit talks ‘over and done with’ by autumn.
The meeting comes after the two governments agreed to intensify negotiations, setting out a new accelerated timetable for meetings in July.
The sped-up process will include a mix of formal negotiating rounds and smaller group sessions. Meetings will happen in Brussels and London if public health guidelines allow it.
FX strategists at Rabobank told investors this week that unless some positive news comes out of the Brexit talks soon, EUR/GBP could push towards 0.90 on a one-month view.
The mini-summit between Johnson and von Der Leyen precedes a session of the European Council, where EU leaders will meet by video to discuss critical issues, including the Brexit trade negotiations.
While the meeting's outcome could impact Sterling, some analysts thought it no longer presented the threat that it once did. There was a Sterling selloff in May when markets looked at the upcoming June meeting as a crucial moment for Brexit talks. The meeting’s current agenda, however, doesn’t even mention the negotiations.
EU leaders are focused on the recovery fund created in response to the coronavirus crisis, and review the bloc’s new long-term budget.
Sterling was trading under pressure against the US Dollar and Euro ahead of the Johnson-von der Leyen meeting, but higher against the Aussie and Kiwi dollars.
Analysts said the pound’s exchange rate complex confirms that broader risk trends are driving forex markets, with currencies reacting to yet another big stock market selloff and nervous investors look for safety.
Risk aversion in markets has also been exacerbated by the spike in US coronavirus cases seen in states who’ve rushed to leave the country’s short-lived lockdown.
The US is seeing a resurgence in infection rates in states like Florida and Alabama, while South Carolina recorded a record number of new infections for three days in a row this week.
American Health officials have put the spike in cases down to holiday gatherings held over the recent Memorial Day weekend.