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Economic Tornado as UK Heads Down the Pan


The latest official labour market figures from the Office for National Statistics (ONS) and the quarterly Inflation Report from the Bank of England make frightening reading

Although the latest labour market data are in line with expectations, further evidence of fewer people in work, higher unemployment and more people becoming economically inactive is a clear sign that the jobs situation was continuing to weaken toward the end of 2010, well before the impact of the coalition government’s spending cuts and tax rises start to take full effect. The economically inactive figure is now put at 9.36 million or over 22% of the working population a wholly unsustainable figure for any economy let alone one with minimal growth and possibly facing a double dip back to recession.

The number of people being made redundant stabilised around the turn of the year and that the number of job vacancies increased slightly. However, indicators suggest that redundancies are now on the rise, especially in the public sector, while recruitment is easing across most sectors. All this points to a ‘job-loss recovery’ and a further increase in unemployment throughout the remainder of 2011 at the very least. The current unemployment cycle is set to exhibit a ‘twin-peak’, the jobless total having initially levelled off in 2010 following the recession. Sometime ago we predicted that unemployment would see 3 million before it saw 2 million and the true upward trend is being disguised by the movement upwards in the economically inactive and understates true unemployment.

Although there is an increase in the number of employees working full-time, this is almost exactly offset by a fall in the number of part-time employees.

A weakening jobs market, muted economic growth, ultra-tight fiscal policy, plus well above target price inflation and the greater prospect of an interest rate hike sometime later this year provide all the ingredients for a ‘perfect storm’ to hit the UK economy. No wonder Bank of England Governor Mervyn King struck a sombre note  when downgrading the Bank’s near term forecast for economic growth, while also keeping us guessing on whether the Monetary Policy Committee will hike interest rates any time soon. As he faces into this gathering storm, the Chancellor must plan next month’s budget. It will be crucial for the job market that he succeeds in delivering the planned ‘budget for growth’ at a time of great austerity. If he finds this an impossible task, in the light of escalating food and fuel inflation, he may yet have to reach for a fiscal solution and to start the printing presses rolling again.

The UK is in the eye of an economic typhoon and in danger of going down the pan as no economy can sustain a welfare state supporting such a high proportion of its working population.

 

Author: Chris Slay

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