Has unemployment reached its peak?

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Date: 23 February 2021

Candidates waiting to be interviewed for a new job

The unemployment rate has risen to its highest level in almost five years but a new poll by the CIPD suggests that more than half of employers expect to hire new staff in 2021.

The latest data from the Office for National Statistics (ONS) shows that the UK's jobless rate rose to 5.1% in the three months to December 2020. It means that the number of people on company payrolls is down 726,000 on pre-pandemic levels.

However, the ONS also reports that there are "some early signs of stabilisation in the jobs market". In particular, it points to a small increase in the numbers of employees paid through payroll, with 83,000 more people on company books in January 2021 compared with December 2020.

In fact, the UK economy could be close to unemployment peak according to the latest Labour Market Outlook report by the Chartered Institute of Personnel and Development (CIPD) and the Adecco Group.

The poll of 2,000 employers has found that 56% are planning to recruit in the first quarter of 2021, up from 53% in the previous quarter and 49% six months ago. This is down from 66% during the same quarter last year.

Sectors that are indicating strong hiring intentions include healthcare (80%), finance and insurance (65%), education (65%) and information and communications (67%). However, this optimism does not extend to sectors that continue to be affected by social distancing measures, such as hospitality (36%).

Meanwhile, the share of organisations planning to make redundancies in the first quarter has fallen from 30% to 20%. In the private sector, the number of employers saying they are planning redundancies has dropped from 34% to 20%.

"These are the first signs of positive employment prospects that we've seen in a year," said Gerwyn Davies, senior labour market adviser at the CIPD. "Our findings suggest that unemployment may be close to peak and may even undershoot official forecasts, especially given the reported fall in the supply of overseas workers.

"However, it is far too soon to rule out further significant private sector redundancies later in the year if the government does not extend the furlough scheme to the end of June or if the economy suffers any additional unexpected shocks. It would be hugely counterproductive if the government's financial support faltered while some of the biggest sectors of the UK economy are still in survival mode."

However, the ONS figures also show that the number of self-employed workers has tumbled again. Overall, the number of self-employed in the UK has fallen to 4,374,000 - a drop of 653,000 from the same time last year. After over a decade of continuous growth, this takes the total number in the self-employed sector back to levels not seen since 2013.

Derek Cribb, ceo of the Association of Independent Professionals and the Self-Employed (IPSE), said: "There was continuous growth in the self-employed sector for over a decade before the pandemic, which boosted both innovation in the economy and also the UK's overall employment rate. If the government wants to stave off drastic rises in unemployment, it must offer comprehensive support to all self-employed groups and also rethink the seriously damaging changes to IR35 tax rules."

Written by Rachel Miller.

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