Jobs market could recover by 2023 despite rise in unemployment

The economy could recover all of the jobs lost to Covid within two years in a remarkable turnaround, economists have said - despite unemployment climbing to its highest level since early 2016.

Official figures revealed the jobless rate edged up 0.1 percentage points to a five-year high of 5.1pc in the three months to December.

But more timely indicators suggest the picture is starting to improve as companies tentatively begin hiring again, and economists now predict a far lower peak in the jobless rate than was feared when the pandemic first struck.

The number of workers on payrolls increased for a second consecutive month in January despite the return of national restrictions, figures from the Office for National Statistics show.

Employees on payrolls, regarded by economists as a more accurate reflection of employment levels during the Covid crisis, rose by 83,000 compared to December - although they are still more than 700,000 below pre-virus levels.

Vacancies also continued to improve in January, albeit at a slower pace. Job postings remained 26pc lower than a year earlier, a huge improvement on 60pc down last summer, while the redundancy rate fell back in December from record highs the previous month.

Forecasters are now predicting a rapid jobs recovery as vaccines beat back the coronavirus and the country gradually returns to normal.

Thomas Pugh of Capital Economics said that if the Government follows the roadmap laid out on Monday by Prime Minister Boris Johnson and most Covid-19 restrictions are scrapped by June, then the jobless rate may be back at its pre-pandemic level of 4pc in 2023.

He predicted that a bumper rebound in economic activity in the second half of 2021 will mean unemployment peaks at 6.5pc, far lower than initially feared by some forecasters who predicted a spike as high as 15pc.

EY Item Club economist Howard Archer said that resilience in the jobs market’s means there is a growing possibility that the unemployment rate may not rise far above 6pc.

The extension of the taxpayer-funded furlough scheme until the end of April is helping prevent mass lay-offs, he said.

Economists believe the real unemployment figure is much higher than current levels and will climb sharply this year as the full impact of Covid-19 feeds through to the labour market.

The unemployment rate is artificially low because the furlough scheme is supporting workers who no longer have a real job to go back to.

Meanwhile, a jobless worker is only counted as unemployed if they are seeking a new role. Many employees sacked during Covid have temporarily dropped out altogether and are not trying to find work.

With millions of workers still reliant on the Government’s wage subsidy, business groups and trade unions urged Chancellor Rishi Sunak to extend his jobs support at the Budget.

Matthew Percival, of the Confederation of British Industry, said: “Employers will now be looking to the Chancellor to extend furlough, securing people’s jobs and livelihoods.

“With tough decisions on jobs being taken daily, employers need the Budget to provide further business support until the economy is fully reopen.”

The furlough scheme pays 80pc of a worker’s wage up to £2,500 per month and has propped up the jobs of around 10m employees during the pandemic. Mr Sunak will deliver his next Budget on March 3.

The ONS analysis revealed that young workers and non-UK nationals have experienced large drop-offs in employment during the pandemic.

Young workers have suffered almost 60pc of Covid job losses, enduring a far greater plunge in employment than any other age group.

The Chancellor was urged to provide extra support for young workers after new figures revealed the number of employees aged under 25 on company payrolls has tumbled 425,000 since Covid struck. That was far higher than any other age group and accounted for the majority of the total 726,000 slump.

Meanwhile EU nationals in employment slipped by 43,000 in the final three months of 2020, a decline that will stoke fears over a large population plunge during the crisis. Estimates have suggested that the UK's population may have dropped by around 1.3m during the pandemic, including a 700,000 fall in London.