Wednesday 19 January 2011 12.36 GMT
Unemployment: What the experts say
Unemployment figures show the UK labour market is extremely fragile, economists say
City experts have warned that the UK labour market is extremely fragile, after youth unemployment hit a record high. Data released today showed that the claimant count dropped by 4,200 in December, but the wider ILO measure rose by 45,000 in the three months to November to just under 2.5m.
Hetal Mehta, UK economist at Daiwa Capital Markets
Today's labour market statistics are slightly better than expected, with the fall in the claimant count welcome. However, surveys such as the services PMI suggest that employers are continuing to shed jobs, and the public sector job losses are yet to bite. In our view, unemployment is set to rise, with the ILO rate increasing to over 8% in the coming months.And with so much slack in the labour market, earnings growth continues to remain subdued. This of course means negative real wage growth, something that will constrain further household spending. So, with no signs of an emerging impact on wage growth from the persistent above-target inflation, today's data provide the Bank of England with further reasons to refrain from any policy tightening in the near term.
Alan Clarke, UK economist at BNP Paribas
The ILO data was rather disappointing. The ILO measure of employment fell by 69,000 in the last three months, while the ILO measure of unemployment rose by 49,000. To some extent the deterioration in these is payback for the strong readings towards the end of 2010.Nonetheless, the deterioration is probably also related to the slowdown in the wider economy since the middle of last year. With GDP growth likely to be rather more subdued for at least the next two quarters, we suspect that there will be more reports like this one in the months ahead.
Wage inflation was 2.1% on a headline basis and 2.3% excluding bonus.
Sky high consumer price inflation coupled with subdued wage inflation and falling employment means that household real incomes are being squeezed. This reaffirms our belief that consumer spending growth will be much weaker than consensus expectations this year.
David Kern, chief economist at the British Chambers of Commerce
These figures are disappointing and once again slightly worse than expected. For the second month in a row unemployment is up, employment is down and the level of inactivity has seen a marked increase. Employment has declined for both full time and part time jobs and the number of people working part time because they could not find a full time job rose to its highest level since comparable records began in 1992. In addition, a record number of young people are out of work.While longer-term trends still show that the UK labour market remains relatively robust, the new figures highlight the challenges facing the economy in the months ahead when the austerity programme is implemented more forcefully.
In light of these figures, we reiterate our forecast that unemployment is likely to increase to 2.6 million over the next year, a further net rise of around 100,000. With the prospect that private-sector employment could decline over the next year, it is critical that private-sector businesses are able to create new jobs.
Howard Archer at IHS Global Insight
The labour market data are a mixed bunch, but overall they do not significantly change our suspicion that unemployment is likely to rise in 2011 in the face of slower growth and increasing job losses in the public sector.Major job losses will occur in the public sector as the government slashes spending, and we doubt that the private sector will be able to fully compensate for this. Indeed, we suspect that firms will become increasingly cautious in their employment plans, reflecting slower growth and concerns that the intensified fiscal squeeze will hold back economic activity for an extended period. There are also likely to be significant job losses in private companies supplying services or goods to the public sector. In particular, many firms are likely to try to meet any increase in business through making greater use of the workers they have already or through using part-time staff, and they are likely to be reluctant to take on any more permanent staff unless they are really convinced that sustained improvement in their business is probable.
Chris Williamson, chief economist at Markit
Today's labour market numbers are of heightened importance, given yesterday's rise in inflation to an eight-month high of 3.7%. In particular, the rate of pay growth held steady at 2.1%, suggesting that rising prices show little signs of feeding through to pay negotiations. Such so-called 'second-round' effects are likely to be key to any rise in interest rates by the Bank of England, and today's numbers will therefore alleviate pressure on the Bank of England to hike interest rates in the face of a temporary spike in inflation while the economic recovery remains fragile.More up-to-date survey data suggest that employment trends deteriorated at the end of last year, with private sector job growth stagnating and the public sector likely to have cut payroll numbers in the drive to reduce spending. It is therefore likely that job insecurity will remain high for some time during 2011, meaning pay pressures are set to remain weak. This should help keep core inflation down in the medium term, offsetting rising energy and food prices.
Brian Johnson, insolvency practitioner at HW Fisher
The latest figures show that the recent trend of increasing unemployment is continuing. The future prospects for unemployment in 2011 remain bleak, particularly as the effects of any Government cut-backs are still not being felt within the job market.These are anxious times for many employees and anyone unfortunate to have lost their job but it is also a terrible time for graduates and school leavers entering the jobs market.
Companies are risk-averse and risk-averse companies are less inclined to take on staff with little or no experience, especially when existing staff are prepared to be more flexible or take reduced hours as they are at present.
Over the past few years we have lost businesses and banks and now, before our very eyes, we are losing an entire generation.
