- 477k new welfare claims pushes unemployment rate up to 5.3%.
- Highest since Sept quarter 2015, with more losses still to come.
- As government restrictions hit incomes and outright employment.
- And as ham-fisted bureaucracy delays delivery of Gov's virus aid.
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The unemployment rate may have risen to its highest level for five years this last week after nearly half a million people were said by the government to have applied for welfare payments in the nine days to Wednesday, underlining the threat posed to the economy by coronavirus containment efforts.
Some 477,000 people made new claims for benefits payments in the nine days to Wednesday, Department for Work & Pensions Secretary Theresa Coffey told a parliamentary select committee this week. Coffey's testimony was first reported by The Guardian on Wednesday although further investigation reveals this could be enough to have already lifted the jobless rate to its highest level since the quarter ending in September 2015.
There were 32.98mn people in work during the three months to the end of January, Office for National Statistics (ONS) data revealed last week, and there was 1.33mn people who were classed as unemployed. The potential labour force is actually 42.74mn and much larger than the 34.31mn implied by ONS numbers because there were 8.43mn 'economically inactive' people not grouped under the jobless rate because they were not actively seeking work.
The 1.33mn who were classed as unemployed in January made for a 3.9% unemployment rate on ONS definitions, which is close to the lowest level of the official jobless rate since 1973. But adding 477k to that number produces an unemployment rate of 5.3%, the highest since the September quarter of 2015. And there could be further sharp increases just around the corner as government restrictions on non-home work in non-essential industries bites.
"That would already be half the unemployment rise during the GFC. The risk is adding a potentially GFC type jobless gain to a sudden economic stop could magnify the downside," says Robert Wood of BofA Global Research.
Prime Minister Boris Johnson instructed Friday that pubs, restaurants and cafes close in order to slow the spread of coronavirus and this week he extended that instruction to incorporate all industries and premises not covered by certain exemptions. The instructions were given legal weight on Wednesday when the coronavirus bill received Royal Assent, granting the PM, his ministers and state authorities powers that are unprecedented outside of global conflicts.
Those measures were only announced this weekend so they may not be the driver of the nine-day increase in claims which, if correct, might indicate further steep increases in claims and the jobless rate are just around the corner. The government had, however, encouraged before those measures were announced that members of the public avoid pubs, cafes and restaurants as well as unnecessary social contact.
This was widely reported to have driven a downturn in trade for high street businesses and to have already prompted lay-offs well before last weekend so it could be the case that the 477k claims are just the tip of the iceberg that blocks the UK's economic path ahead. Whether or not this is the case matters to the outlook for government spending, borrowing and the budget deficit, which is important for the current account deficit and Pound Sterling.
"The UC numbers may show that the fiscal package, large as the headline numbers are, is not enough," says BofA's Wood. "First, the self-employed (15% of workforce) get little support. They have recourse to UC. Second, government wage subsidiesdon't pay out until late April. That may not prevent large layoffs in the mean-time given, third, reports suggestingserious cash flow problems. Reports suggest firms have so far found it difficult to access government guaranteed loans, some have put workers on unpaid leave immediately, and begun stopping rental and supplier payments."
The government has announced unprecedented measures to support companies and households through the shutdown that's billed by politicians and others as a China, if not prison-style 'lockdown'. Those measures include offers to pay up to 80% of wages to avoid seeing workers lose jobs, tax deferrals and cash grants for companies as well as uber cheap and government guaranteed loans for businesses deemed by state authorities to be 'viable'.
Those measures could see the government splurging more than £100bn this year alone in order to combat the economic damage caused by the spread of the coronavirus that escaped China's borders in January and has since spread to almost every country on the planet. And such expenditure would lift the government deficit by around 5% of GDP this year alone. Some economists see the 2020 deficit coming in potentially as high as 10% of GDP.
However, the effectiveness of the measures as a cushion for companies and households appears to be being hampered by ham-fisted bureacracy within government departments, notably the Department for Work and Pensions. The DWP told parliament this week that new claimants will need to wait five weeks before they receive their firt payment provided for by the government and that this would be only after their claims are processed. Coffey said there were no plans to change the current system.
The processing of claims can take up to three weeks in normal times and would be enough to extend the time between initial claim and first payment to eight weeks. This is in a country where nearly half of the work force are thought to have either no savings at all or cash buffers worth less than £1,500, which is just 5% of the £29,400 median income reported by the ONS for 2019 and little more than half the median monthly salary.
"As of 9am on 25 March 2020, a total of 97,019 people have been tested, of which 87,490 were confirmed negative and 9,529 were confirmed positive. 463 patients in the UK who tested positive for coronavirus (COVID-19) have died," the government says.
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