“The increase in headline unemployment to 5.1% in the three months to December is not good news, but this rate is still much lower than many had feared a few months ago. Indeed, the single-month estimate for December (also 5.1%) was a tick below the number in October (5.2%).
“This adds to other evidence that the labour market has stabilised, despite the renewed lockdown. The more timely PAYE data suggest that payroll employment actually rose in January for the second month running. This is consistent with the more positive signals from many business surveys.
“Of course, these figures are flattered by the furlough scheme, which is currently protecting up to 6 million jobs. It would make sense for the Chancellor to extend this scheme in next week’s Budget, but only for as long as substantial Covid restrictions remain in place.
“Once the brakes are taken off, the economy is likely to bounce back quickly. The large majority of people on furlough should then be able to return to work, or find new jobs elsewhere. The UK’s relatively flexible labour market is good at creating new jobs to replace any that are lost.
“Extending the furlough scheme much beyond the summer would therefore be both costly and counterproductive. It would lock people into jobs that are no longer viable and delay the adjustment to the ‘new normal’, whatever that may be.”
Notes to editors
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