UK unemployment may not reach its worst, but economic rebound will stall
The TUC boss, Paul Nowak, could be accused of exaggeration when he says “the Tories are presiding over a rapidly deteriorating jobs market”.
The UK has experienced many periods when unemployment has deteriorated more quickly and the number of people out of work reached greater peaks.
The union leader is concerned after the latest labour market figures showed unemployment rising by 166,000 over the last quarter to 1,486,000 to reach 4.3% of the workforce.
Emphasising the noticeable deterioration in the jobs market, the number of vacancies fell and the amount of workers in employment also dropped, indicating that firms are neither looking for as many workers as they were previously, nor are they prepared to hang on to as many as they once did.
Joe Nellis, the professor of global economy at the Cranfield School of Management, expects the rise in the unemployment rate to continue towards the end of the year, peaking at about 5%.
Yet, the numbers are not huge in a historical context and the economy is growing, as we found out last week when the Office for National Statistics produced figures for national output, or gross domestic product (GDP), covering the first quarter.
The 0.6% rise in GDP between January and March this year marked a turnaround from last year’s recession and indicated businesses were more optimistic about the year ahead.
Pay growth is also consistently strong, allowing Jeremy Hunt to boast that wages have risen faster than inflation for the past 10 months, easing the cost of living pressures on households.
Still, Nowak’s analysis not only gathers up the evidence of a slowdown from the current figures, but also looks ahead to the summer and autumn, when one of the biggest costs facing businesses and homeowners, namely interest bills, is likely to remain high.
The Bank of England seems determined to keep interest rates painfully onerous for those with debts to service, even if it slices a few tenths of a percentage point off the 5.25% total before the end of the year.
Almost 1 million homeowners will need to remortgage this year, adding an average £1,800 to their bills. Combined with the extra interest costs paid by businesses, it is a sizeable amount of money to take out of the economy.
A steeper fall in interest rates could keep consumer spending higher and save many businesses from going under.
As it is, thousands of firms will suffer from this loss of cash in circulation, especially in the hospitality industry, laying off even more workers.
The end result is unlikely to send unemployment shooting back to levels last seen in the 1980s and early 1990s
– when rates hit double digits – but the effect will stall the recent economic rebound before it has even really got going.