Graph chart data background. Finance concept, gray vector pattern. Stock market report statistics design.

The economic toll from the coronavirus pandemic continues to build, as easyJet PLC (LON:EZJ) and Bodycote PLC (LON:BOY) said they will axe 4,500 and 700 jobs respectively.

Roughly a one in four companies say they cannot currently afford to pay staff that are on the government furlough scheme, according to a survey of business leaders also published today, which points to further heavy rounds of lay-offs later in the summer. 

In the past couple of months, the airline industry’s workers have been the first noticeable victims of the coronavirus pandemic, with the collapse of FlyBe into administration, followed by British Airways owner IAG (LON:IAG) revealing plans to cut 12,000 staff, Ryanair (LON:RYA) eyeing 3,000 job cuts and Virgin Atlantic around 3,150 jobs.

Suppliers followed, with engine maker Rolls Royce (LON:RR.) axing 9,000 jobs and engineer Meggitt (LON:MGGT) saying it will reduce its global workforce by around 1,800.

Other industries are also shedding jobs as demand drops, with paving slab maker Marshalls (LON:MSLH) saying it may cut up to 400 jobs permanently as part of a restructuring plan, plus privately owned companies including carmaker Mclaren axing 1,200 jobs and Ovo Energy planning to cut around 2,600 roles.

A victim more of the oil price fall, North Sea producer Enquest has said it is consulting on plans to axe 530 out 1,300 UK employees.

Unemployment claims rose by 856,500 in official universal credit claims figures published earlier this month, up from a mere 5,400 in March, taking the official claimant count to 2.1mln, around a third higher than the levels seen following the financial crisis.

This indicates an unemployment rate of 5.8% and points to rate as high as 9%, which would be above the worst we saw following the financial crisis, though still a long way behind the 22-25% rate expected in the US.

More cuts on the way

More cuts are undoubtedly on the way in the UK however, as the government furlough system winds down. 

October is when the UK job retention scheme is due to finish, with the Treasury confirming today that around 1mln companies have furloughed 8.4mln jobs, at a cost to the state of around £15bn.

From August, companies will be asked to cover about a quarter of the 80% government subsidy.

But an Institute of Directors survey published today found a fifth if companies claimed they will be able to afford to provide the 20% contribution of workers’ full-time salaries between August and October.

A quarter of respondents said that they could not afford any amount, which points to around a quarter of a million companies. 

Jonathan Geldart, director-general of the business lobby group, said: “The furlough scheme is protecting millions of jobs. Business leaders know that the government’s support can’t be infinite, but the ugly truth is that if there’s no money coming in the door, many firms will be forced to make difficult decisions come August. Many firms simply won’t be able to work at full capacity for the foreseeable future.”

Some companies have said they are working out how many cuts are likely, with the chief executive of Airbus, which employs around 13,500 in the UK, recently saying the aeroplane manufacturer needs to “right-size” its business.

HSBC PLC (LON:HSBA), which already in February said it was planning to slash about 35,000 jobs, was reported this week to be looking at even sharper cuts. 

Retail and hospitality watch

With a staged reopening of the lockdown, various sectors will be closely eyeing how demand returns, with worries that retailers, restaurants, pubs and other leisure sector operators will continue to be squeezed by social distancing constraints and cautious behaviour by consumers.

“Many firms will be unable to operate at full capacity for some time, and this means there’s an increasing risk that businesses begin to make longer-lasting changes to their business models,” said economist James Smith at ING. 

“That, in turn, raises the risk of a second wave of redundancies depending on how and when the job retention scheme is eventually phased out.

He said the risks for hospitality and retail were particularly acute. 

“We know from recent ONS surveys that these sectors have the highest proportion of firms accessing the furlough scheme. These are also among the industries likely to be most affected by social distancing rules over coming months, and importantly they are also the sectors that have typically led the recovery in the jobs market in previous downturns.

“Sectors with the highest usage of the furlough scheme also have lower levels of average pay – which again highlights that those at the lower end of the income scale are likely to be hardest hit.”

There are some slivers of optimism to be had, though in practice these might quickly evaporate. 

Household spending has the potential to rebound strongly in the second half, with levels of savings built up as incomes are currently 10-to-15% below pre-virus levels versus a 30% fall in spending.

“Spending could theoretically overshoot the level of income generated by households, if they run down these amassed savings,” said Samuel Tombs at Pantheon Macroeconomics, also noting that the UK economy should also benefit from the collapse in international tourism, as overseas spending by UK residents exceeds tourists’ spending over here.

“In practice, however, households likely will be extremely reluctant to spend while the chances of being made redundant or the perching risk of catching the virus is high.

“Demand for many consumer services likely will remain well below pre-virus levels until a vaccine is found.”