The number of UK workers on payrolls dropped by 56,000 last month and has fallen by 813,000 since March 2020 due to the impact of the pandemic, according to the Office for National Statistics (ONS).
Darren Morgan, director of economic statistics at the ONS, said: "The latest figures suggest that the jobs market has been broadly stable in recent months after the major shock of last spring.
"The number of people on payroll fell slightly in March after a few months of growth.
"There are, though, over 800,000 fewer employees than before the pandemic struck, and with around five million people employed but still on furlough, the labour market remains subdued.
"However, with the prospect of businesses reopening, there was a marked rise in job vacancies in March, especially in sectors such as hospitality."
The British Chambers of Commerce (BCC) said unemployment is on track to hit its peak at the end of the year as furlough is closed off.
“The latest data confirms that the UK labour market remains subdued,” head of economics, Suren Thiru, said.
“While there was a marginal fall in the unemployment rate, the squeeze on activity from ongoing restrictions helped drive a decline in payroll employment in March.
“Unemployment remains on course to peak towards the end of 2021, once the furlough scheme expires and those who stopped job hunting during the pandemic look to return to the workforce as restrictions ease”
Suren warned that young people will be the worst hit by job cuts.
“Although the furlough scheme will limit the peak in job losses, the longer-term structural unemployment caused by Covid-19, particularly among young people, may mean that the road back to pre-pandemic levels lags behind the wider economic recovery.
“Further action will be needed to support the labour market when the furlough scheme ends, including supporting businesses to recruit and retain staff through a temporary cut in employer national insurance contributions.”
Paul Craig at Quilter Investors: said: "At 5.0% the unemployment rate remains artificially suppressed by furlough and there are fears that ‘real’ unemployment could easily be more than double what the stats tell us."
But he said the UK is in a sweet spot with the vaccination roll out on track and job adverts improving in line with eased restrictions.
Craig said combined, this could help stabilise employment in the coming months.
“The positive news is that online job adverts are returning to pre-pandemic levels as the economy begins its tentative steps to normality, and it appears better times are on the horizon.
"The UK is approaching somewhat of a sweet spot with the successful vaccine rollout allowing the economic reopening, and this is coinciding at a time when the stimulus taps remain turned on, giving people hope that better times are right around the corner.
"The government will be hoping that this increase in consumer demand results in a spending splurge of the accumulated lockdown savings, providing businesses with a significant boost given what they missed out on last year.
“However, all of this is not without risk. Covid variants remain a concern and could quite easily derail things significantly. Meanwhile we remain cautious on how the economy will cope once stimulus is withdrawn and the businesses we will end up losing as a result. Nevertheless, for investors now is the time to make hay while the sun shines. The outlook for the UK looks positive in the short-term and as such opportunities should present themselves as economic growth returns.”
Chancellor of the Exchequer, Rishi Sunak, said despite the figures, the government has saved 11.2million roles since last March.
“Protecting jobs and the economy has been my main focus since this pandemic began - through the furlough scheme alone we have protected 11.2 million jobs.
“As we progress on our roadmap to recovery I will continue to put people at the heart of the Government's response through our Plan for Jobs - supporting and creating jobs across the country.”
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