UK Jobless Claims Surge by Record Amount as Pandemic Hits

May 20, 2020 Updated: May 20, 2020

LONDON—Unemployment claims in Britain jumped by a record amount in April to their highest level since the 1990s, underscoring the effects of the COVID-19 pandemic on the economy even as government programs sought to keep workers on payrolls.

Treasury chief Rishi Sunak downplayed the chances of a swift recovery in a parliamentary hearing. He couldn’t, in short, pledge to secure every job or business, noting that immediate bounce back isn’t a given.

“Obviously, the impact will be severe,” he said. “We are likely to face a severe recession the likes of which we have never seen.”

Jobless claims surged by 856,000 in April to 2.1 million, the highest since 1996 and an increase of 69 percent from the month before, the Office of National Statistics said on May 19. The figures covered only the first weeks of the lockdown, said Jonathan Athow, a statistician at the ONS.

As bad as it was, economists suggested it could have been much worse. The government created a job retention program to prevent millions of people from being laid off by effectively putting them on the government payroll. Britain’s Treasury said on May 19 that 8 million people have been put on furlough lists and an additional 2 million self-employed people have applied for income support.

“The fact unemployment hasn’t already shot up far higher given the huge fall in GDP and temporary closure of around a quarter of businesses is a good result for the government,” said Andrew Wishart, an economist at Capital Economics. He said that reflects the fact so many people have been furloughed, rather than being made redundant.

The government wage support scheme is due to ask employers to share costs from August, so job losses could accelerate if employers decide that their businesses can’t survive and give up.

Among the sectors hit hardest were hospitality and construction. Job vacancies also dropped sharply, with the number of empty posts falling by 170,000 to 637,000 in the three months to April compared with the previous quarter.

The unemployment rate was at 3.9 percent in March, the last month for which full labor market statistics are available. Experts predict it will rise toward 10 percent by the fall.

Economist Kallum Pickering of Berenberg bank said that would mean an increase in the number of unemployed workers to around 3.3 million from about 1.35 million in March—far exceeding the previous peak of 2.7 million in October 2011 in the wake of the financial crisis. Others think it could rise far higher, especially if there is a second peak of the virus.

An unemployment rate peak of 10 percent would still be well below the rate in the U.S., where the jobless rate hit 14.7 percent in April and is forecast to rise further.

The British government also announced on May 19 it was quadrupling the size of loans available to larger businesses that have been affected by the coronavirus crisis, many of whom have already used the job retention scheme to put workers on furlough.

The Treasury said companies will now be able to receive up to 200 million pounds ($245 million) under the Coronavirus Large Business Interruption Loan Scheme, from 50 million pounds before. The scheme is available for firms with an annual turnover of more than 45 million pounds.

Suren Thiru, head of economics at the British Chamber of Commerce, said the change “will help ensure that more businesses of all sizes get access to the finance they need to help weather this unprecedented economic storm.”

By Danica Kirka