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Yesterday’s employment figures provided the first glimpses of the pandemic’s lasting effects on the UK jobs market. Redundancies rose at their sharpest rate since 2009, pushing the unemployment rate up from 3.9% to 4.1%, 48,000 up on the previous quarter.
The concern has always been that government measures like the ‘Eat Out to Help Out’ and furlough schemes were papering over the cracks of a looming autumn employment crisis, and yesterday’s figures were the first to flesh out the disconnect between the Summer upsurge in economic activity and the overall health of UK employment.
As we head into a winter of touted discontent - featuring ongoing discussions over the Brexit bill and the wrapping up of the furlough scheme - the question on investors’ minds will be: what happens next?
The full picture remains unclear
When firms cut jobs, it’s not necessarily a bad thing for investors. Often a company trimming a bloated workforce can suggest improved efficiency and improving profits. Clearly, that’s not the case here. Redundancies now are being forced on companies who are desperately looking for ways to shore up their books - none of which bodes well for their profits. What’s more, as unemployment goes up, household spending is likely to come down, further afflicting sectors such as hospitality and retail that have already suffered their fair share through the pandemic.
There have long been fears over what would happen as the nights begin to draw in - in May, Andy Haldane, the Bank of England’s chief economist, warned that unemployment could rise to its highest levels since the 1980s.
And while it’s too soon for yesterday’s figures to confirm Haldane’s grim prediction, they’ve certainly enflamed further calls for action. The Unite union spoke of ‘redundancy floodgates’ if the government did not extend its furlough scheme, and Labour leader Sir Keir Starmer called on the government to provide a replacement, arguing it made ‘no sense at all for the government to pull support away now.’
Will Rishi get ‘creative’?
The chancellor’s furlough scheme has formed the centrepiece of the government’s efforts to keep the UK economy and employment stable through the worst of the pandemic, and he remains insistent that this temporary measure will end on 31st October.
Despite yesterday’s figures only exacerbating calls for its extension, the chancellor may instead cite them as evidence of why furlough is no longer the answer. The full extent of unemployment remains yet to be seen, but we are starting to build a clearer picture of where some of the pressure points lie. Young people have borne the brunt, with 13.4% of economically active people aged 16-24 unemployed, while self-employed and part-time workers have also been hit hard.
The furlough scheme will not help younger or self-employed people who are struggling to enter the jobs market, nor are they likely to benefit from being kept in sectors that are shrinking rather than encouraged to areas of growth.
And though the government has so far treated sector-targeted support with caution, suggestions of more targeted protection measures are ramping up. Mims Davies, the employment minister, said: “there will be sectors that take longer to come back - I don't think this government is afraid of supporting where we can”, while the chancellor said: “throughout this crisis I have not hesitated to act in creative and effective ways to support jobs and employment and I will continue to do so” - his most explicit hint at a new measure to help jobs.
What does this tell investors?
On the face of it, very little. Yesterday was only an initial sketch of the bigger unemployment picture we will build up over the coming months. And while it confirmed much of what we expected, figures like these are still painful.
Though it offered little in the way of certainty, news like this can nevertheless serve as a timely reminder of how the pandemic’s full effects are not being felt equally across the entire economy. Different sectors, age groups and regions are being impacted in different ways. Focussing in too hard on the negatives here could cause panic - a better strategy would be to remember that a portfolio spread across various geographies and sectors can help buffer against any uncertainty to come.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. Select 50 is not a personal recommendation to buy or sell a fund. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.