By William Schomberg and David Milliken
LONDON (Reuters) - Fewer British workers lost their jobs in June and there were other signs that the hit to the labour market had eased off since the onset of the coronavirus crisis, but economists said unemployment remained on course to jump.
The number of employees on company payrolls slumped by 649,000 between March and June, despite the government's huge job retention plan that has protected more than 9 million jobs.
However, June's drop of just over 74,000 was much smaller than April's 450,000 tumble and was smaller than the fall in May too, the Office for National Statistics said.
The unemployment rate unexpectedly held at 3.9% in the three months to May. It would have risen were it not for half a million people who were away from work and receiving no pay - but who said they believed they still had a job, and thus count as employed according to international guidelines.
A rise in people who were not looking for work also pushed down on the jobless rate.
Most economists polled by Reuters had expected the rate to rise to 4.2%.
Yael Selfin, chief economist at KPMG UK, said the data represented "the calm before the storm... but as the Job Retention Scheme unwinds in coming months, the full impact of the recession on unemployment is likely to be revealed."
Finance minister Rishi Sunak plans to phase out the scheme by the end of October. Last week he announced 30 billion pounds of new measures to stem an expected surge in unemployment.
Since then a string of companies have announced layoff plans ranging from private security firm G4S (CSE:G4S) to retailers Boots and John Lewis.
A survey by the British Chambers of Commerce showed 29% of companies expected to lay off staff in the third quarter.
"It's clear that we're in the middle of a severe economic downturn," Sunak said after Thursday's data. "As I said last week, we will never accept unemployment as an unavoidable outcome."
Britain's budget forecasters say the unemployment rate could rise as high as 13% this year, exceeding a previous post-war high of 11.9% set in 1984.
The ONS said the number of people in employment in the three months to May fell by the most since 2011, down 126,000, driven mostly by self-employed people.
But the fall was only about half as severe as the median forecast in a Reuters poll.
The number of people claiming Universal Credit welfare unexpectedly fell in June by 28,100 to 2.631 million, but remained more than double its figure in March. The figure includes people who are in low-paid work.
The number of vacancies fell in the three months to June to the lowest level since records began in 2001 at 333,000.
But a monthly breakdown showed a slight increase in vacancies in June alone.
Similarly, hours worked slumped to a record low average in the March-May period, reflecting the job retention scheme. But weekly data showed signs of a slight pick-up recently.
The data also showed a hit to pay reflecting how most people on job retention scheme receive 80% of their pay.
Average total pay, including bonuses, fell by an annual -0.3%, the first negative figure since 2014 and its biggest fall since 2009.