Unemployment in the U.K. edged up in July even though large sections of the British economy reopened after the coronavirus lockdown, a clear signal that the jobless rate is set to spike sharply higher when a government salary-support scheme comes to an end in the autumn.
The 104,000 rise in the number of people unemployed during the three-month period to July took the total to 1.4 million, and raised the unemployment rate by 0.2 percentage points to 4.1% — the biggest increase since the pandemic began.
The increase in unemployment came even after the reopening of the hospitality sector in early July, following on from the reopening of shops selling items deemed as nonessential, such as clothes and books.
The reopening of key sectors in the economy meant many people — thought to be around 2 million — could return to work following months at home as a result of the wide-ranging lockdown, which shuttered swaths of the economy.
To prevent an immediate sharp spike in unemployment when the lockdown was announced, the government introduced the Job Retention Scheme, which saw it pay the bulk of the salary of people that firms kept on payroll rather than making them redundant.
Analysts worry that unemployment will start to rise more markedly in the coming months as the package, which was used by more than a million companies to keep nearly 10 million employees on payroll, comes to an end on Oct. 31.
The unemployment figures clearly show that some firms have started laying off staff ahead of the program's end. The statistics agency said another 36,000 people fell off the payroll of private companies in August, taking the number to 695,000 since the imposition of the lockdown in March.
"The furlough scheme has been very effective in cushioning the blow from the pandemic to the labour market," said Debapratim De, senior economist at Deloitte. "But cracks are beginning to show, with unemployment rising, particularly among younger workers, and redundancies hitting their highest level in almost eight years."
Most economists think that the unemployment rate could more or less double by the end of the year to around 8% as firms decide they can't keep on all the people that they retained.
With many sectors of the economy unable to return to normal business because of ongoing social distancing requirements, and parts of the country in localised lockdowns, there are calls for the government to provide additional support when the so-called furlough program expires. Already, it has announced a bonus for those employers keeping workers on.