This is a much deeper recession than 2009 – but we can expect a quicker recovery

The chill winter has begun. The rise in UK unemployment to 4.5 per cent is a taste of things to come. The new partial lockdowns will inevitably cost some jobs that might otherwise have been created, so the questions are about the scale of the blow and the timing and pace of the recovery.

Scale first. Unemployment always gives a rear-view mirror perspective on what is happening to the economy, a lagging indicator of overall demand for goods, services and the people who create them. So the best feeling for what will happen to unemployment comes from what we know, or can reasonably guess, about the size of the economic blow during the spring and summer.

We know that the economy declined by around 20 per cent from peak to trough during the first half of the year. The official figures put the loss a bit greater, but they are always revised, so let’s stick to a round number. We think that about two-thirds of that loss has been recovered by the end of the third quarter, but that’s less than two weeks ago, so we have to rely on real-time data to give us a feeling for that.

The picture varies depending on what you look at. So road fuel sales are running at 93 per cent of the levels of February, but national rail traffic is about 30 per cent of pre-Covid levels. Heavy goods vehicle traffic is actually higher than it was in February, but of course Heathrow is running at only 20 per cent of its February levels. While there have obviously been winners and losers, overall business turnover is down about 7 per cent from normal.

That gives a bit of confidence to the general notion that if we went down by a touch over 20 per cent we have recovered two-thirds of the loss. But it does not tell us anything about the next few months, and the worrying thing here is that even before these latest measures, the recovery seemed to be stalling. It is things like traffic cameras showing a fall last month in the numbers of pedestrians and cyclists, and a decline in people using the Tube in London. This is not a catastrophe like the spring, and after the rebound from that you would expect some sort of pause. But a pause there is, and that is concerning.

Overall judgement? This is clearly a much deeper recession than in 2009, the last one, but we are, so far at least, recovering much faster. That gives us a frame of reference to think about the impact on unemployment.

We went into this downturn with unemployment just under 4 per cent. That is actually a bit lower than it was in 2007, when it was a bit above 5 per cent. At its peak in 2011 it was more than 8 per cent, and it stayed around that level for three years.

This time? The Centre for Economic and Business Research has just forecast that it will peak at 7.2 per cent in the final quarter of this year, but then start coming back down in 2021. If that is more or less right, there are two legitimate reactions.

One is that this doesn’t sound too bad, at least it isn’t nearly as bad as it was last time. The other is that the speed, disruption and very different impact on the different sectors of the job market is something we have never had before in peacetime, so for many people this will actually be worse than the post-2009 disaster.

Much clearly depends on the timing and pace of the recovery. What can we say about that? Timing actually is pretty clear. It has happened. There will be pauses, and we are probably having one now. There may even be another quarter when things fall back, though the odds are against it. But while anything is possible, another technical recession, defined as two successive quarters of negative growth, is surely unlikely.

The pace of recovery is a bigger concern. The problem is that the disruption may undermine future growth. If, for example, air travel takes three or four years to reach its pre-Covid levels, that is an awful lot of jobs that will be destroyed, not only in the industry itself, but in associated activities such as tourism and entertainment. If international business travel fails to recover, there will be further job losses in the various industries that serve that market. What will happen to cities if working from home does indeed stick?

There are counter arguments of which perhaps the strongest are that economic policy worldwide will be strongly supportive of growth, and that disruption, for all its pain, has in the past often been a driver of innovation and growth.

But while the longer-term outlook for unemployment may be less dire than it seems right now, we still have to get through the winter. That may be fine for people in secure jobs, but for the many who are not – well, we must in our different ways figure out how to help keep things moving through the cold months ahead.