LONDON — Unemployment in the U.K. spiked higher in August, a clear sign that the jobless rate is heading towards levels not seen in 30 years as a government salary-support program ends this month and new local restrictions are imposed to suppress a resurgence of the coronavirus.
The Office for National Statistics said Tuesday that unemployment rose by 138,000 in the three months to August from the previous three-month period. The unemployment rate jumped to 4.5%, its highest rate since early 2017, from 4.1% in the previous quarter.
Though unemployment has been edging up during the pandemic, with the likes of British Airways, Royal Mail and Rolls-Royce all laying off thousands, Britain has been spared the surge in unemployment seen in the United States. The British economy endured one of the deepest recessions in the spring and while it has rebounded in the past few months, it is still about 10% smaller than it was at the end of 2019.
The main reason why unemployment has not spiked sharply higher has been the government's Coronavirus Job Retention Scheme, which has paid most of the salaries of workers who have not been fired. Some 1.2 million employers have taken advantage of the program to furlough 9.6 million people at a cost to the government of nearly 40 billion pounds ($52 billion).
At one stage, around 30% of the U.K.'s working population was on furlough. Although they weren't working over the past few months, they were not counted as unemployed.
Since the program ends at the end of October, many of those still on furlough are expected to be made redundant and unemployment to rise further.
Andrew Bailey, the governor of the Bank of England, told an economics committee of the House of Lords, that the pandemic will lead to "persistent unemployment" because some businesses just "cannot survive" in a world of lockdowns and restrictions.
"That increases the importance of the need to ensure people can move jobs, retrain, get new skills, get skills to match the direction in which the change is happening," he said.
Further headwinds to the economy have emerged in recent weeks with the resurgence in the virus and the government's tightening of local restrictions.
As a result, there are concerns that unemployment could soar towards 3 million, levels not seen since the early 1990s.
"A higher case rate, new restrictions and less government support are likely to push unemployment up over the winter months," said Ian Stewart, chief economist at consultancy Deloitte. "The path of the virus continues to dictate the direction of the economy."
On Monday, the government carved England into three tiers of coronavirus risk in a bid to slow the outbreak, putting the northern city of Liverpool into the highest-risk category and shutting its pubs, gyms and betting shops. To ease the economic hit, the government will pay two thirds of the salaries of workers in companies that have to close.
Without directly backing the new plan, Bailey said it is "entirely correct" that as the incidence of COVID-19 changes, the policy response changes too.
Leaders across the north of England and unions have said the new package is unacceptable because it is not as generous as the national scheme and does not cover workers who are affected indirectly by new restrictions.
"Wage replacement should be 80% for businesses who have to shut," said Frances O'Grady, general secretary of the umbrella Trades Union Congress. "We need a more generous short-time working scheme for firms which aren't required to close but will be hit by stricter local restrictions, and self-employed people in local lockdown areas need help, too."