Britain’s jobs market showed signs of improvement in January with the first drop in unemployment since the coronavirus pandemic spread a year ago, despite renewed lockdown measures heaping pressure on the economy. The Office for National Statistics said the unemployment rate fell back slightly to 5% in the three months to January, representing 1.7 million people – down from 5.1% in the three months to December. City economists had forecast a rise in the jobless rate to 5.2%. It comes as the government’s furlough scheme continues to support the jobs market, with millions of people still on the emergency wage scheme. The latest snapshot showed a 68,000 rise in the number of workers on company payrolls in February, compared with January, as the roadmap out of lockdown restrictions boosted the prospects for employment. It was the third consecutive monthly increase. However, the figures come after a year of economic turmoil that has left the number of people on company payrolls down 693,000 compared with before the pandemic struck, with younger workers under 25 accounting for 60% of job losses in the past year. More than half of the fall was in the embattled hospitality sector, while almost a third was in London. The unemployment rate remains 1.1 percentage points higher than a year ago before the pandemic struck. Figures compiled by the ONS also showed the number of non-UK born workers in the final quarter of 2020 was half a million lower than a year ago. The economy shrank by less than expected in January amid the toughest controls since the first wave of the pandemic. But while the prospects for jobs and growth are expected to improve over the coming months as the Covid vaccine is deployed, business leaders and unions warned that government support remained vital. Suren Thiru, the head of economics at the British Chambers of Commerce, said furlough and greater clarity provided by the government’s unlocking roadmap, as well as firms adapting to lockdown restrictions, had helped the jobs market. “With many firms struggling with the damage done to their cashflow by a year of Covid restrictions, unemployment is likely to remain on an upward trajectory until well beyond a full reopening of the economy,” Thiru said. The number of workers on furlough has risen to almost 5 million during the latest wave of the pandemic, helping to prevent a rise in job losses as the economy remains under pressure. After repeated attempts to close the scheme last autumn when redundancies were rising at the fastest rate on record, Rishi Sunak used this month’s budget to extend furlough until the end of September. The chancellor said supporting and creating jobs had been his focus throughout the pandemic. “The continued success of the vaccine rollout provides us with hope for the future, and through our plan for jobs, we will continue to support people throughout the months to come,” he said. Unemployment is expected to peak at 6.5% at the end of this year after the scheme ends, according to forecasts from the Office for Budget Responsibility, the Treasury’s economics watchdog. Tony Wilson, director of the Institute for Employment Studies, said there were clear signs the jobs market was turning a corner, but that much of the gains were being driven by fewer people leaving work – rather than more people getting new jobs. “This is proving to be a disaster for young people, who now account for nearly two thirds of the fall in employment and none of the recent growth,” he said. Cyrille Lenoël, senior economist at the National Institute of Economic and Social Research, said the success of the vaccination campaign was bringing hope that ending restrictions would help sectors such as hospitality to resume activity. However, concerns remain there will still be lasting damage beyond the end of lockdown. “The effect of the pandemic on the labour market will probably be felt for years to come. Most furloughed workers will be able to return to their old job, but a significant number will find that their job has disappeared as businesses adjust to a new normal,” he said.