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Goldman Sachs: Rise in UK unemployment will be 'short-lived'

FILE - In this Tuesday, June 30, 2020 file photo, members of the public walk past a closed shop in Leicester city centre, England. Unemployment across the U.K. has held steady during the coronavirus lockdown as a result of a government salary support scheme, but there are clear signals emerging that job losses will skyrocket over coming months. The Office for National Statistics said Thursday, July 16, 2020 there were 649,000 fewer people, or 2.2%, on payroll in June when compared with March when the lockdown restrictions were imposed.  (AP Photo/Rui Vieira, File)
A closed shop in Leicester city centre, England. Photo: Rui Vieira/AP

A looming rise in UK unemployment is only likely to be temporary, according to Goldman Sachs (GS).

The investment bank played down fears of 1980s-style systemic unemployment in a note sent to clients last week, saying it expects only a “short-lived” spike in the UK’s unemployment rate.

“From an economy-wide perspective... we expect the spike in aggregate unemployment to be short-lived, with the majority of furloughed workers getting reabsorbed into gainful employment given our expectations for a strong post-lockdown rebound,” economists Adrian Paul and Kavya Saxena wrote.

Goldman Sachs expects the unemployment rate to rise from 4% to 9.5% later this year after the government’s job retention scheme comes to an end in October.

But the investment bank thinks the UK economy will be on the upturn by then and predicts unemployment will “fall back fast as the recovery takes root.”

The prediction stands in contrast to other commentators who have warned that a generation of people could be left devastated by the UK’s looming jobs.

Three former chancellors and the Bank of England’s chief economist have all raised concerns that the UK could face 1980s-levels of “systematic” unemployment as a result of the COVID-19 pandemic. Systematic unemployment is where people who lose their jobs struggle to find new roles and end up falling out of the labour force for good.

Goldman Sachs thinks most Brits made unemployed will find new employment but warns there will be huge amounts of “reallocation” — people moving from one industry to another.

The investment bank predicts that 10% of jobs in hospitality, leisure, and retail will be lost for good, leaving millions hunting for work elsewhere. Big employers in these sectors including John Lewis, Boots, Burger King, and Pret have all announced thousands of redundancies in recent weeks.

Goldman Sachs thinks most people will find new jobs within 18 months but said: “The scale of that reallocation is likely to be more demanding than that which followed the 2008/09 crisis.”

Earlier this month chancellor Rishi Sunak announced a £30bn ($38bn) “Plan for Jobs” aimed at protecting and creating jobs. The programme includes subsidies work placements and a £1,000 “bonus” for companies that bring staff back from furlough.

“Although hardship lies ahead, no one will be left without hope,” Sunak said at the time. “I will never accept unemployment as an unavoidable outcome.”

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