Expect A Flurry Of Policy Announcements After Today’s Unemployment Numbers

Data released by the Office for National Statistics (ONS) this morning showed the ILO rate of unemployment in the UK stood at 7.9% for the three months to July, up 0.3 percentage points on the quarter and the largest quarterly increase in unemployment since the three months to August 2009, when the UK was still in the midst of recession. The more timely claimant count measure rose by 20,300 between July and August, a further sign of weakening labour market conditions.

The number of people employed in the public sector fell by a staggering 111,000 between March and June 2011, suggesting that job shedding in the public sector is occurring at a much more rapid rate than anticipated; the Office for Budget Responsibility expected general government employment to fall by just 20,000 in the 2011/12 fiscal year. The fact that private sector job creation was just 41,000 over this time period confirms Cebr’s long-held view that the private sector labour market would be unable to offset public sector job losses in the short-term. We expect the unemployment rate to creep above 8.0% over the coming months.

Earnings data also point towards ongoing weakness in the labour market, with the annual growth rate for regular pay (excluding bonuses) rising by just 2.1% over the three months to July 2011 – around half typical pre-recession levels and continuing to trail behind the rising cost of living. Yesterday’s ONS data showed inflation on the CPI measure running at 4.5% in August 2011, suggesting that real incomes continue to tumble.

The UK government will now be under immense pressure to deal with unemployment, especially given President Obama’s announcement of a $450 billion job creation package in the US last week. The focus of a UK jobs creation package would almost certainly be on private sector deregulation and measures aimed at reducing the risk associated with hiring new workers – rather than a slowdown in the pace of deficit reduction – given the political costs of moving away from “plan A”. All the economic indicators suggest the UK economy is struggling to generate momentum and a proper growth agenda from policymakers can no longer wait.

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