Covid-19 pushes jobless rate to three-year high after record cull

Economists fear unemployment will continue to rise after a record 114,000 redundancies

Unemployment has hit its highest level for more than three years as the impact of the Covid-19 crisis triggered record redundancies. 

The Office for National Statistics’s latest figures showed the jobless rate reached a worse-than-expected 4.5pc in the June to August quarter, the highest since February to April 2017.

Redundancies jumped by a record 114,000 on the quarter, to 227,000, as the level of company culls hit its highest level since July 2009 in the aftermath of the financial crisis.

An estimated 1.52m people were unemployed over the quarter, 138,000 above the March to May period. Male workers are bearing the brunt with unemployment at 4.9pc, compared to 4pc for women.

The true impact of the virus on unemployment has so far been shielded from the official figures by the Government’s furlough scheme, which finishes in less than three weeks’ time. Furloughed workers - an estimated 9pc of the workforce - are not counted as unemployed.

Samuel Tombs, UK economist at Pantheon, said: “We continue to expect the headline rate of unemployment to shoot up over the coming months.”

More current PAYE figures for September revealed a 20,000 upturn in payrolled staff, although numbers are still down 673,000 compared to March.

The claimant count - including both those working with low income or hours and those not working - also reached 2.7m last month.

The slump in employment is also far deeper than previously thought after a move to telephone surveys by the ONS due to social distancing  requirements meant it spoke to too many homeowners and not enough renters.

Its revisions suggest employment has now slumped 482,000 since February, compared to previous estimates of 94,000.

Paul Dales, chief UK economist at Capital Economics, said: "The fallout in the labour market from the Covid-19 recession has been worse than previously thought. And with the latest  restrictions threatening to stall the economic recovery, if not send it into reverse, the unemployment rate may yet climb to almost 8pc next year."

Chancellor Rishi Sunak announced a less generous successor to the furlough scheme in his Winter Economic Plan last month but critics have warned the scheme will not be enough to prevent mass culls in combination with fresh coronavirus restrictions.

The Bank of England's latest forecasts - made before the furlough successor was announced - signal unemployment peaking at 7.5pc this year. 

The Office for Budget Responsibility's central scenario for the economy is even more bleak, with the jobless rate peaking at 12pc.