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UK Unemployment Drop Confirms Election Stealth Economic Boom Forecast 2010

Economics / Economic Recovery Jan 20, 2010 - 09:26 AM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis ArticleUK Unemployment fell for October data by 33,000 to 2.458 million leaving the UK jobless rate at 7.7% which is significantly below that of the U.S. at 10%. The news surprised journalists and academic economists that went scurrying to further revise forecasts that barely a few months ago were calling for UK unemployment to hit between 3 and 3.4 million by the time of the next general election. Journo-economists and academic economists have shown great consistently these past 12 months by being wrong on virtually all aspects of financial and economic activity right from the birth of the stocks stealth bull market of March 2009, straight into the election boom of 2010 and not forgetting yesterdays inflation spike.


UK Unemployment and the Stealth Election Economic Boom

My UK unemployment forecast as of October 2008 (July 08 data) forecast UK unemployment to hit 2.6 million by April 2010. Today's data to date of 2.458 million is suggestive of an marginally lower peak, with unemployment benefit claimant count registering a small fall from 1569 to 1567 for December. The moderating unemployment data has surprised academic economists and journo-economists as it is contrary to the anticipated rise. The response has been to belittle the data as one off aberration, however to me this confirms my in depth analysis and forecast as of 31st December 09 that forecast a UK election stealth economic boom with above trend growth of 2.8% for 2010, well beyond that forecast by the likes of the Item Club earlier this week of just 1% GDP. Which followed my 2009 GDP forecast for contraction of -4.75% as of Feb 2009 as illustrated below.

Watch this space for UK GDP 2009 Q4 growth to surprise to the upside.

UK Unemployment Analysis

UK Unemployment is stabilising at 2.5 million is inline with the stabilisation of the claimant count which confirm that we are in the early stages of a very strong economic recovery. I say strong because unemployment tends to LAG economic activity, therefore if it is NOT lagging then it means that the economy has turned around quite rapidly during the fourth quarter therefore no lag.

UK unemployment - July09

However, I have long questioned the accuracy and validity of the official unemployment data which over several decades and much manipulation by successive governments has been tweaked many hundreds of time to under report true unemployment for political purposes. Current official unemployment stands at 2.458 million for October 09 data release which is against the total recorded as economically inactive of working age that stands at 8.05 million which in my opinion is more reflective of the true rate of unemployment as the below graph illustrates.

UK Real Unemployment

The real unemployment rate has risen to a NEW HIGH above the trend channel that has been in existence for several years. This is suggestive that whilst the headline unemployment numbers may fall, however in reality we are witnessing a jobless economic recovery.

However this does still offer the potential for a fall in the real unemployed rate during 2010 to the bottom of the channel i.e. a drop of approx 200,000 during 2010.

In conclusion the headline UK unemployment rate of 2.458 million is showing signs of stabilising in the face of a strong economic activity which confirms my analysis of December 09 that called for an imminent peak in unemployment, therefore I expect UK unemployment to continue to decline during Q1 of 2010, which continues to confirm my view of a much stronger than expected economic recovery and hence continue to contribute towards improving Labours election prospects.

Academic Economist Worthless Unemployment Forecasts

Academic economists have collectively converged during 2009 into the consensus view that UK unemployment would soar to between 3 and 3.4 million by the time of the next general election (May 2010). Now with unemployment stabilising in the face of a strong economic turnaround in the fourth quarter these same institutions and academics will be busy revising forecasts for UK unemployment much lower in the coming months, and hoping for collective amnesia amongst the public so that they continue to take their worthless forecasts seriously.

European Commission - May 2009 - It expects UK unemployment to rise to 9.4pc by 2010 leaving 3m workers jobless.

British Chambers of Commerce - April 2009 - Last month, data confirmed that the total number of people out of work surpassed the 2m mark in the three months to January, taking the official unemployment rate to 6.5pc – the highest since 1997. The BCC believes the total could hit 3.2m by the third quarter of next year.

Bank of England - Blanchflower - April 2009 - Warned unemployment was likely to top 3 million by the end of the year and there was a 'good chance it could go much higher still'.

CBI - Feb 2009 - The UK’s leading business group predicts the recession, which began in the third quarter of 2008, will last throughout 2009. The economy is expected to contract by 3.3 per cent and unemployment will reach close to 2.9 million by the end of the year.

UK Inflation Forecast 2010

My inflation forecast for 2010 as of 27th December 2009 as part of the inflation mega-trend ebook due to be published this week and made available for FREE (subscribe to free email newsletter) forecast UK inflation to rise to above 3% early 2010, spiking as high as 3.6% and stay above 3% for most of the year only dipping to 2.7% by the end of the year as illustrated by the below graph.

UK Interest Rates Forecast 2010

My in-depth analysis and forecast of 13th Jan 2009 forecast that UK interest rates would rise to 3% by mid 2011, and end 2010 at the target rate of 2%.

My next article will seek to analyse how pubic sector spending will be cut, as both parties whilst having made loud noises have so far only published token cuts that do not go far enough.

Source : http://www.marketoracle.co.uk/Article16630.html

By Nadeem Walayat http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

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 UK inflation, economy, interest rates and the housing market . Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 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

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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