Business Environment Profiles - United Kingdom
Published: 31 March 2025
National unemployment rate
4 Percentage
0.1 %
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Having fallen for eight consecutive years through 2019-20 inclusive, the ILO unemployment rate of the United Kingdom fell to one of its lowest levels since comparable records began, recording a monthly average of just under 4.0% in 2019-20, down by 0.9 percentage points compared to 2016-17, the base year of the focus period. Following a period of post-financial crisis austerity, ensuing economic recovery and lax labour laws subsequently encouraged employment of those of working age as business activity rebounded. Further to this, the growing prevalence of self-employment, particularly in new-age sectors like the gig economy, helped keep sustained pressure on the UK's unemployment rate. This was despite prolonged post-EU referendum economic uncertainty exposing cracks in the labour market, as many employers grew cautious in respect to business expansion efforts and recruitment activity while the UK's future relationship with the EU bloc, at the time, appeared ambiguous. A deal, after drawn out negotiations, was eventually made statutory and the UK's post-transition period withdrawal from the bloc was effectively completed on 1 January 2021, upon ratification of the EU-UK Trade and Cooperation Agreement.
The COVID-19 (coronavirus) pandemic, however, reversed fortunes in the labour market. An exogenous economic shock, consequent of severe and market-wide supply- and value-chain disruption induced by public health restrictions, led to sub-optimal capacity and lacklustre demand across many sectors, whereby significantly reduced business activity has naturally limited recruitment activity and raised the propensity of those effected to trim their workforce. Meanwhile, during a recessionary period and while ample economic prospects appeared bleak, heightened insolvency pressures threatened to drive up unemployment at an accelerated pace. As a result of reduced commercial activity across the economy, and characteristic of a period of economic downturn, the ILO unemployment rate of the UK market has trended upwards since the turn of the 2020 calendar year. Overall, the average monthly UK unemployment rate increased to 4.9% in 2020-21, up 0.9 percentage points year on year; however, any would-be exponential increase in the unemployment rate was restricted by government support packages designed to prevent significant job losses. Insolvency specialist Begbies Traynor labelled the pandemic 'a true black swan event that has decimated short term business financial performance', and suggested insolvency statistics and unemployment levels were 'likely to be understated due to the short-term financial support options available which will be keeping thousands on artificial life support'.
In respect to unemployment levels during COVID-19, the aforementioned government support packages designed to shield any exponential economic downturn included the Coronavirus Job Retention Scheme (CJRS). First announced on 20 March 2020, and with employers able to claim support for employees 'furloughed' from 1 March 2020, the CJRS, up to 30 June 2020, provided employers with financial support of up to 80% of their furloughed employees' salaries - this support was capped at £2,500 per month per employee. For the period 1 July 2020 to 31 October 2020, except in certain exceptional circumstances, staff who had not already been furloughed under the scheme could not be included in claims for support. Changes to the scheme from the start of August, September and October gradually reduced the total level of support available for each furloughed employee up to the end of October. The government subsequently announced an extension to the CJRS through 30 April 2021, and extended it again at Budget 2021, announcing access to the CJRS would be made available through 30 September 2021, during which time it was gradually phased out. According to Her Majesty's Revenue and Customs (HMRC), furloughing via the CJRS peaked at 8.9 million on 8 May 2020.
With temporary coronavirus business support measures ceasing in September 2021, businesses subject to pandemic-induced disruption, and those reliant on support programmes like the CJRS were and are more at risk of succumbing to significant fiscal pressure and consequently being threatened with insolvency. At least through the near term, markets are likely to remain in a depressed state, relative to pre-pandemic capacity levels, or otherwise may show signs of a stunted recovery if the absence of support measures weighs on businesses' balance sheets. The withdrawal of 'artificial life support' for the many businesses saddling with sub-optimal demand during COVID-19 could see many employers trim their workforce more willingly, so as to limit overheads and preserve cash reserves. However, as the economy reopened, and business activity in key sectors rebounded from lockdown lows, accelerated recruitment activity in markets elsewhere, to a certain extent, counterbalanced the implications for the unemployment rate as per redundancy programmes among the most severely affected businesses. In this regard, the monthly average ILO employment rate of the United Kingdom fell by 0.6 percentage points though 2021-22. Over the current year, this trend is projected to continue, with the monthly average ILO employment rate of the United Kingdom forecast to fall by 0.2 percentage points, to reach 4.1%.
Assuming markets correct, returning to what is recognised as 'normal' capacity post-pandemic, and...
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