UK Unemployment Continues to Soar Towards 3Million as Mervyn King Makes Excuses
Economics / Recession 2008 - 2010 Aug 13, 2009 - 01:17 AMBy: Nadeem_Walayat
UK Unemployment continues its inexorable rise by hitting 2.435 million despite desperate and unprecedented government measures to prevent electoral suicide that would accompany a 3 million unemployment figure by the date of the next general election due within the next 10 months. Unemployment jumped by 220,000 in the three months to May 2009 to the highest level since Labour came to power, with the jobless rate now standing at 7.8%.
Meanwhile, Mervyn King continued to make excuses for the his role in the failure of the Bank of England to competently manage monetary policy which required direct intervention by Gordon Brown in October 2008 to kick the MPC Committee out of paralysis and into action. However since which all the Bank of England seems to do in its announcements is to offer excuses rather than solutions as the Labour Government attempts to avert economic disaster through direct interventions and dicatats whilst having to cope with an incompetent FSA regulator and central bank, though of its own making.
Mervyn King on Wednesday attempted to explain away why the central bank printed an extra £50 billion last week, when he had signaled to the city that Quantitative Easing had been brought to a halt, by stating "I don't know why they got that impression", he said. "We couldn't have made it clearer". Which illustrates how inept the Governor of the Bank of England has become. However, whilst much of the city were hoodwinked by the Bank of England's indecision into assuming no more money would be printed, I refer you to my own conclusion of less than a month ago which concluded that despite whatever the Bank of England alludes to in public that they WILL continue to print money as there remains no alternative.
UK Unemployment remains on track to trend higher towards 3 million by the end of 2009, boosted by some 250,000 school, college and University leavers unable to find work. This gives the government the green light for further economic stimulus (debt) into the May 2010 general election as well as for the Bank of England to escalate its quantitative easing / money printing programme beyond the £125 billion to date.
Mervyn King continued to warn of economic stagnation - "The sustainability and strength of any recovery will be affected by necessary balance-sheet adjustments of the banking, household and public sectors. Recovery could be slow and protracted."
UK Unemployment Forecast and Trend
The original forecast of October 2008 (July 08 data) as illustrated by the below graph, forecast UK unemployment to hit 2.6 million by April 2010. The actual data to date of 2.43 million to May 2009 clearly continues to suggest a much higher peak which remains on track to hit 3 million, as unemployment tends to lag economic recoveries by anywhere from between 6 to 12 months.
However on a slightly more positive note, the most recent claimant count monthly data showed a small rise in the July data to 1.57 million from 1.553 million therefore suggesting that the momentum of rising unemployment as a consequence of the the first quarter economic crash is beginning to dissipate and stabilise towards a far more shallower trend in rising UK unemployment, though this can be partially explained away by government interventions such as the New Deal which take people off of the official claimant count and place them under other 'headings', as well as many unemployed are ineligible to claim benefits thus masking the true number claiming that are still in effect unemployed.
Some more good news was in the number of redundancies which was down by 9000 on the previous quarter at 277,000, as many workers opt for pay cuts to try and hang onto existing jobs during the recession, which does not bode well for a consumer led recovery.
Meanwhile the number of vacancies continues to dry up by hitting a record low of 427,000 in July 2009 which is suggestive of a jobless recovery.
Whilst the mainstream press focus has been on the headline unemployment data and the benefits claimant count, however the real number of unemployed stands far higher when taking into account all those of working age (16 to 64) as illustrated below with the total at 7.955 million, which is reflective of a contracting labour market with net outward migration as primarily eastern european workers are apparently returning home in the face of increasing difficulties in the UK labour market, therefore the UK is exporting some of its unemployment to the rest of Europe.
UK Unemployment Time bomb - The lost generation
The often warned of spanner in the works for a stabilising labour market as illustrated in my analysis of 21st February 09 ( UK Unemployment Time Bomb to Explode July 2009) that there exists the unemployment time bomb of the estimated 600,000 of school, college,leavers and graduates that are expected to join the labour market starting July 2009 which could result in a surge of unemployment of as many as 250,000 in a single month, with also extra high unemployed numbers for subsequent months, this factor has recently been starting to be recognised by the mainstream press that is suggesting that as many as half of the 600,000 graduates will not be able to find work and thus many of whom will be come unemployed. Therefore July and August unemployment data may produce surprises to the upside after more subdued May and June data.
Youth unemployment now stands at more than 1 million with 17.5% of those aged 17 to 24 unemployed, which carries the serious risk of of a lost generation much as occurred during the mid 1980's, as the growing debt mountain ensures deep public spending cuts and tax rises following the May 2010 general election which is projected to further add to a stagnant labour market with an persistent unemployed number north of 3 million. The consequences of the lost generation will be seen higher crime statistics and psychological healthcare issues.
Sectors Hit by Unemployment
As expected the sectors most hit by the recession over the last 12 months having recorded job losses have been in Finance down 190,000; manufacturing down 215,000 and retail down 200,000. Meanwhile offsetting this has been the surge in public sector jobs of 168,000. However the analysis Bankrupt Britain's Public Sector Double Dip Debt Recession on Deep Spending Cuts warned of deep spending cuts that would signal a public sector double dip recession that would soon follow the May 2010 General Election, this also sets the scene for areas of the country that are heavily reliant on public sector such as the North East, North West and Wales to experience a much deeper second recession.
Unemployment Benefits Contributing to Huge Budget Deficits
As the the employed become unemployed, tax revenues turn into benefits payments thus contributing towards a widening in the gap between the governments revenue and expenditure that continues to grow despite the debt fuelled economic recovery into a May 2010 election. This is expected to contribute towards a £20 billion shortfall during 2009 due to the increase in unemployment from 2 million to 3 million by year end.
The debt mountain has exploded to more than 12% of GDP for 2009 and expected to continue at levels of above 10% of GDP for at least the next 5 years regardless of spending cuts after the next election. The growing debt mountain will result in a prolonged period of above average inflation and interest rates as the market will demand higher interest rates to finance the extra government debt resulting in higher inflation as the government is forced to devalue the debt mountain by means of inflation to finance the higher interest payments with the most probable outcome of a second more severe double dip recession during 2011-2012.
The Bank of England continues to fight to keep money market interest rates low by printing money to buy Government bonds, though this policy risks much higher inflation further down the road coupled with economic stagnation.
Conclusion - UK Unemployment remains on track to trend higher towards 3 million by the end of 2009, boosted by some 250,000 school, college and University leavers unable to find work. This gives the government the green light for further economic stimulus (debt) into the May 2010 general election as well as for the Bank of England to escalate its quantitative easing / money printing programme beyond the £175 billion to date, which is already £25 billion above the set limit of £150 billion.
By Nadeem Walayat
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Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 250 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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