However, the ONS figures revealed that Scotland’s employment rate has increased over the quarter to 74.4% and the unemployment rate estimate has decreased over the quarter to 4.4%.

HMRC early estimates for December 2020 for Scotland, also published this morning, show that there were 2.3 million payrolled employees in Scotland, increasing by 9,000 compared with November, however 67,000 lower than a year ago.

The ONS figures have revealed that an estimated 1.72 million were out of work across the UK, marking the highest level in five years.  That was 418,000 more than in the same period the previous year, the biggest increase since late 2009.

At the same time, redundancies rose to a record high of 395,000.

Even with the extension of the furlough scheme, pressure on the labour market is likely to increase with the economy expected to contract in Q1 2021 and the widespread closure of hospitality and leisure companies as well as non-essential retailers.

The hospitality industry was worst hit by the rise in joblessness, followed by manufacturing. In both sectors, the number of people unemployed was up by more than 50,000 on the previous year.

Jamie Hepburn, minister for business, fair work and skills in Scotland, said: “These figures still do not reflect the full impact of coronavirus (COVID-19) or outlook for employment as the Job Retention Scheme continues to play an important role in supporting employers and employees. Combined with the huge economic uncertainty caused by Brexit, this remains an extremely uncertain time for the economy and jobs.

“The Scottish Government continues to support employers, allocating over £3 billion to help businesses since the start of this pandemic.

“This is in addition to our £60 million Young Person’s Guarantee, giving every young person across Scotland aged between 16 and 24 the opportunity of work, education or training. Meanwhile, the £25 million National Transition Training Fund will help up to 10,000 people aged 25 and over, who have lost their jobs or are at risk of redundancy as a result of this crisis, to develop the skills required to move into sectors with the greatest potential for future growth and job opportunities, such as green technologies.

“We are taking every step within our power to create a stronger, more resilient, sustainable economy for Scotland and this week the Finance Secretary will set out the next budget which will outline our plans to support the Scottish economy going forward.”

Economic forecaster the EY ITEM Club suspects that the UK unemployment rate could reach 7.0% around the middle of 2021, although the forecast peak is both lower and later than had been expected before the extension of the furlough scheme from its original ending date of October 2020.

The forecaster believes the labour market will start gradually improving from the autumn, assuming the economy is stronger over the second half of the year and business confidence – supported by vaccine roll-outs – is firmer.

Howard Archer, chief economic advisor to the EY ITEM Club, said: “While weaker, the latest labour market data show a fair degree of resilience, suggesting that the extension of the furlough scheme to the end of April is having some limiting impact on job losses. The labour market would likely have come under increasing pressure in the final quarter of 2020 from increasing restrictions on activity, including the English lockdown in November.

“The pandemic’s impact on the labour market has been substantially limited by companies’ ability to furlough workers under the Coronavirus Job Retention Scheme. Latest ONS data show that the number of workers on full or partial furlough rose to 16% during 28 December to 10 January.

“While the extension of the furlough scheme and other measures should have a significant impact in reducing redundancies, the EY ITEM Club suspects that job losses will still be notable. This is likely to be particularly true of the hospitality and entertainment sectors. Significantly, employers are required to pay furloughed workers’ national insurance and pension contributions at a time when some have no revenue.”

Andrew McRae, FSB’s Scotland policy chair, added: “These figures show that the furlough scheme, and other government interventions to keep people in jobs, have mostly worked so far. They tell us little about the precarious condition of the economy or the Scottish business community.

“After the financial crash, 9 in ten people moving from unemployment into jobs found work in either a small business or through self-employment. That’s why the Scottish Government must radically expand schemes to help small businesses upskill their workers and recruit new staff.

“This week’s Scottish Government budget is a litmus test for Ministers’ pledge to rebuild the economy. If thousands of small firms fail in the months before widespread vaccine roll-out, it’ll be a tragedy not only for the business owners but also for local labour markets.

“That’s why we need to see the Finance Secretary get the grants system delivering comprehensive support at scale and taking action to push overheads down for local and independent firms. New digital and mental health support for smaller operators would also help smaller businesses rebound after this crisis.”