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Summary
- The REC and KPMG employment index for July stood at 43.4, up from 34.3 recorded in the month of July
- The improvement in the employment index in July is being attributed to the opening up of the hospitality sector, the largest employment sectors in the British economy
- The biggest threat to the continuation of this improvement, however, remains the withdrawal of the governments furloughing scheme which is scheduled for October end this year
The reopening of the hospitality sector seems to have made a big impact on the employment situation in the United Kingdom. The REC and KPMG monthly employment index for the month of July at 43.4 has jumped 9 points from the previous month's figure of 34.3, which is a big leap over a one-month period. The index figure for the month thus represents the slowest decline in unemployment rates in the country over a five-month period since the pandemic broke out. The index figure is, however, well below 50 from where a net growth in hiring is signalled.
The REC and KPMG survey is based on the responses of 400 employers over a period of one month and is one of the parameters watched keenly by the Bank of England (BOE). The central bank in its previous edition had warned of a sharp rise in unemployment rates in the country later during the year, which would be worse than the 2008-09 financial crisis.
The uneven economic recovery and its impact on the state of employment
Not all industries are able to recover from the lockdown evenly as different industries are faced with different conditions; some industries must cope-up with enhanced social distancing measures while others are facing severe supply chain disruptions. Under such circumstances, thus the general confidence level in the economy is not improving, and businesses are not scaling up their operations. The risk that future demand levels may plummet after an initial boost on account of the release of pent up demand from the lockdown period is rife on everybody's minds, and they are unwilling to stick their necks further than is absolutely required. Of the industries that have witnessed a speedy recovery are the housing construction sector, the retail sector, and the utility sector while the aviation sector, recreation sector and the hospitality sector have seen very slow recovery rates. There has been, however, a time lag between the opening of the different sectors since May, when the government has decided to reopen different sectors in stages as per the individual risks associated. A sea change in the recovery levels can thus be expected in different industries over the next few months, which could have a material impact in the subsequent figures of the REC and KPMG monthly employment index.
The likely impact of the withdrawal of the furloughing scheme
The overall recovery state of the British economy has not reached a level of sustainability that the government may consider a blanket withdrawal of any of its stimulus measures. Since the launch of the furlough stimulus measure in March, nearly 9.3 million people have been put under the benefit of the scheme by employers belonging to almost all industries. Now with the business activity levels improving in many of these businesses, they are progressively starting to bring back people from furlough. However, a continuing state of uncertainty around the pandemic is not allowing them to fully scale up, leading to many of their staff still remaining on the benches.
The government till now has not announced any blanket extension of the furloughing scheme nor of any extension for any specific sector. In the absence of any such announcement, it can be assumed that there will be withdrawal at the end of October. It has already been anticipated that several industries will see mass redundancies once the scheme is withdrawn and will add significantly to the country's overall unemployment numbers. In order to encourage more businesses to bring back more people out of furlough, the government had recently announced a £1,000 incentive to companies per employee who are brought back to work. However, a survey done thereafter showed, that only about 43 per cent of the companies are willing to take that deal as it is going to cost them more to bring back an employee out of furlough.
The threat of resurgence on the pandemic in the winter months
There are, however, number of other threats to the British economy than the withdrawal of the furloughing scheme that would play spoilsport for its recovery and badly affect the labour market. The chief among them is the resurgence of the pandemic with the onset of winters which is being predicted by many experts based on the previous experience with SARS and MERS which were also the handiwork of different strains of the coronavirus. Should such an eventuality occur, the situation might get even worse than what it was in March. A second lockdown would wipe out all the recovery that has happened in most of the industries, and the government would also be hard-pressed to roll out any more stimulus packages when it is already drowned deep to the neck in debt.
The outlook of the labour markets
There are two things that would likely ensure that the state of the labour markets continues to improve through the end of this year. First, there is no resurgence of the pandemic during the winter months, which will allow businesses to scale up for the very important holiday season, which is when they make the maximum of their revenue. The second is the early availability of an effective vaccine, which will significantly bring down the threat of the pandemic for the country. The occurrence of both of these events will bring back the confidence levels for both the businesses and the general public, which is what needed the most at this time to speed up the recovery of the economy.