Jobs recovery continues despite end of furlough

The end of the furlough scheme in September does not appear to have led to a spike in unemployment as some feared, official figures suggest.

The number of workers on payrolls jumped by 160,000 in October, the Office for National Statistics said.

Job vacancies also hit a fresh record high of 1.17 million as firms continued to face worker shortages.

Some analysts suggest the figures make it more likely that the Bank of England will raise interest rates in December.

The official unemployment rate has also fallen to 4.3%, close to its pre-pandemic level.

Sam Beckett, head of economic statistics at the Office for National Statistics (ONS), said: "It might take a few months to see the full impact of furlough coming to an end, as people who lost their jobs at the end of September could still be receiving redundancy pay.

"However, October's early estimate shows the number of people on the payroll rose strongly on the month and stands well above its pre-pandemic level."

She added: "There is also no sign of an upturn in redundancies and businesses tell us that only a very small proportion of their previously furloughed staff have been laid off."

An estimated 1.1 million people were still on furlough in the scheme's final days, leading to fears many could be left jobless in October.

But strong demand for workers appears to have prevented this, with significant hiring seen in sectors such as administration, hospitality and healthcare last month.

Commenting on the jobs figures, Chancellor Rishi Sunak hailed the "extraordinary" success of the furlough scheme.

"We know how vital keeping people in good jobs is, both for them and for our economy - which is why it's fantastic to see the unemployment rate falling for nine months in a row and record numbers of people moving into employment," he said.

According to the ONS, 1.2 million people moved into work from being out of work in the July-to-September period, as Covid restrictions fully eased and furlough started to unwind. A further 980,000 people changed jobs.

The Institute for Employment Studies (IES) said it was good news for employees, but companies would continue to struggle to recruit, harming the wider economy.

"We're seeing labour shortages across all parts of the economy and a tighter jobs market than at any time in at least 50 years," said IES director Tony Wilson.

"All told, we've nearly a million workers now missing from the labour market, and their absence is now holding back our recovery and adding to inflation."

He said the trend was mainly caused by older people who lost their jobs not going back to work as well as by more young people staying in education.

Angela Burns is the boss of a group of four hotels across the Midlands and Gloucestershire. The company has at least 20 vacancies, with chefs and housekeeping staff among the most difficult positions to fill.

"There's a huge demand out there for people to come to our hotels. The phones have been so busy, but we're having to close areas of the hotel because we don't have the staff to cope," said Angela.

She said the recruitment process had been frustrating: "We've had a huge amount of people that just don't turn up for interview".

The impact is being felt across the business. Restaurants must be shut, the menu size reduced, and bedrooms can't be turned over quickly due to a lack of cleaning staff.

Angela said that people were looking for more than a pay rise these days.

"It's about flexible working, it's fitting things in with their family, it's training, it's future career prospects as well," she said.

October's jobs data appears to increase the likelihood that the Bank of England will raise interest rates from their record lows before the end of the year, as it seeks to tame inflation.

Many analysts had expected the Bank to raise rates at its meeting earlier this month, but it chose to keep them on hold.

On Monday, Bank governor Andrew Bailey told MPs it had been waiting for official data on the impact of the end of furlough before it made a move.

Paul Dales, chief UK economist at Capital Economics, said: "Overall, it doesn't look as though the labour market loosened much after the end of the furlough scheme.

"If the next labour market release on 14 December tells a similar story, we think that will be enough to prompt the Bank to raise interest rates from 0.10% to 0.25% at the meeting on 16 December."

However, others noted that the Bank may wait given the rate of the UK's economic recovery slowed between July and September due to global supply chain problems.

"Uncertainty is not over yet," said Yael Selfin, chief economist at KPMG UK.  "We expect the Bank will wait with the first hike until February next year, but... an earlier move in December cannot be ruled out."

The Bank of England said last week that one of the reasons it didn't want to raise interest rates yet was because of the uncertainties in the labour market, not least because at the end of September there were still 1.1 million people on furlough.

The fear has always been that that would translate into a big jump in unemployment. Today's figures provide some measure of reassurance about that, showing the number of payrolled employees rose sharply in October.

The Bank is also keeping a close eye on upward pressures on inflation. While average earnings have been growing much faster than inflation, they've more recently slowed down, rising by 4.9% excluding bonuses on the latest figures.

That's still faster than inflation but when you strip out distortions relating to the pandemic, the Office for National Statistics reckons it's closer to 3.4%.

Given the official forecasts that inflation will get up above 4% next year and possibly as high as 5%, the big risk now looks to be less that pay growth might drive inflation up - and more that pay doesn't keep up with prices, dragging living standards down.