The number of people out of work in the UK is set to surge fivefold and the longer the lockdown persists, the more difficult it will be to get people back to their jobs, according to two leading labour-market economists.
The UK’s effective unemployment rate – including those who have been furloughed – will rise to around 20%, according to a paper published by the National Institute of Economic and Social Research. The current rate is 3.9%.
“What is coming in the labour market looks horrendous,” said the paper’s authors David Blanchflower, a Dartmouth College professor and former Bank of England policy maker, and David Bell, a professor at the University of Stirling.
The warning came on another day of bleak economic news for the country as the coronavirus lockdown leaves businesses shuttered and facing an uncertain future.
The economy contracted at the fastest pace in at least 20 years this month, according to a closely watched Purchasing Managers Index. Meanwhile, the Confederation of British Industry said an index of optimism among manufacturers plunged to the lowest on record in the weeks after the curbs were imposed. Order books are expected to keep shrinking and firms plan to slash investment.
With the government offering to pay 80% of workers’ salaries, about 27% of the UK workforce had been furloughed as of April 5, the Office for National Statistics said in a separate report on Thursday. About a quarter of businesses had temporarily ceased trading, and furloughing was most prevalent in the accommodation, food services and construction industries, the ONS said.
Blanchflower and Bell said it will become a “tougher call the longer the lockdown persists” to get people back to work if and when there is a recovery, as that can only happen if firms are solvent and have a market to sell into.
The authors also called for a more timely release of labour market data. As it stands, figures on jobs covering the three months of March to May will only be published in mid-July.
Governor Andrew Bailey said last week it’s reasonable to expect a 35% drop in economic output in the second quarter, and not all of the losses will be recovered. The central bank’s aim is to prevent too much long-term scarring, he said.
Still, there’s hope that output returns quickly when the lockdown ends. The government has unleashed a massive stimulus program to help companies through the crisis.
BOE policy maker Gertjan Vlieghe defended the bank’s response in speech on Thursday, arguing that the coordinated approach with government isn’t compromising its independence. The aim of the policies are to get a V-shaped recovery, but the rebound will probably be slower than that, he said.
What Bloomberg economists say
“The direction of travel for the economy is clear. Our latest forecast is for a 2.6% drop in output in 1Q followed by a whopping 17% in 2Q. The PMI will be key in assessing how quickly the economy recovers as the containment measures are lifted.” – Dan Hanson, senior U.K. economist