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Are Unemployment Figures Believable?

The very surprising improvement in the unemployment figures take some believing but with the upcoming reclassification on invalidity benefit scroungers over the months to come and the fall out from the cull of the public sector this could be the last bit of good news for a while.

Take this together with the fact that 148,000 firms in the UK are on a critical list in terms of credit standing and one has to really put on rose coloured spectacles to believe the UK is truly recovering but we’ll see in the months to come.

Further evidence of the pain faced by consumers emerged as figures showed wage growth far below the rate of inflation in the UK. This very much suits the government although they’ll never admit it. If inflation runs at 4% those in work are taking a real pay cut and even the benefits burden is being eroded. Ideal to increase our international competitiveness as well.

Average earnings increased by 2% in the year to February, 0.3% down on the previous month, the Office for National Statistics (ONS) said. In the same month the rate of inflation hit 4.4%, and while it unexpectedly dropped in March, it is still twice the rate of February’s wage growth at 4%.

Economists have warned that while the gap between wage growth and inflation will be welcomed by the Bank of England, as it supports the case for holding interest rates at 0.5%, it is detrimental to UK workers’ spending power but is the pain we all have to bare as we pay for Gordon Brown’s attempt to walk on water.

Policy makers in the Bank’s Monetary Policy Committee (MPC) have held rates at the historic low for 25 consecutive months and believe upward pressure on inflation is down to temporary price shocks. The MPC is hoping that expectations for inflation remain stable so employers are encouraged to curb wage growth. This is all very convenient as the government can point to third party factors as if their policies are irrelevant but of course it doesn’t bode well for consumer spending.

The only upside is that it reduces the chances of the MPC raising rates next month. But with pay growth still well below the rate of inflation, the continued squeeze on real pay suggests that the recent weakness of consumer spending likely to continue and lead to higher unemployment. Last month, figures revealed households’ disposable income fell for the first time in almost 30 years – by 0.8% – during the final quarter of 2010.

The squeeze on consumer spending has been reflected on the high street, where retailers are struggling. Entertainment group HMV, baby care retailer Mothercare and Currys owner Dixons Retail have all issued profits warnings, while wine merchant Oddbins entered administration.

More sales and pain will follow with greater blood on the street. Who will be next?

What a mess.


Author: Chris Slay

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