By Marcus Leach

Revised forecasts for UK economic and employment growth published today by the Chartered Institute of Personnel and Development (CIPD) revise downward the CIPD’s previous (December 2010) forecast for both GDP and unemployment.

The CIPD now expects the economy to grow by 1.4% in 2011 (down from 1.6% in the previous forecast) and 2.0% in 2012 (down from 2.1%). Unemployment is now expected to peak at 8.7% (2.7 million) in mid-2012 rather than 9.5% as previously forecast.

The downward revision to the CIPD’s unemployment forecast is due in part to lower than expected unemployment in the first quarter of 2011 — which reduces the baseline for the mid year forecast - and in part also to the expectation that a combination of weak growth in labour productivity and modest pay rises will continue to moderate the impact of anaemic output growth on employment.

However, the outlook for jobs would deteriorate if economic growth is even weaker than expected and/or the rate of pay rises accelerates which would put greater pressure on employers to cut staffing costs. Recent news of job losses in parts of retail is therefore especially worrying since it highlights the extent to which many businesses in relatively high employment sectors, dependent on domestic consumer spending, are entering much tougher times.

The revised CIPD forecasts for economic growth, employment and unemployment — outlined in the Institute’s latest Work Audit, The ‘jobs without growth’ conundrum - remain more pessimistic than the current (March 2011) forecasts from the Office for Budget Responsibility (OBR). And while the CIPD now forecasts a lower peak in unemployment, the revised forecast nonetheless indicates that unemployment will be around 2.4 million in 2015, roughly where it stands today and still 800,000 higher than the pre-recession level.

Moreover, as Dr John Philpott, the CIPD’s Chief Economic Adviser, comments, while the outlook for unemployment may be less bleak than initially feared the total amount of pain being inflicted on the labour market by anaemic economic growth is as severe as expected:

“Just as pay freezes and pay cuts protected jobs in the recession, the ongoing pay squeeze is helping our anaemic economy support employment. This is clearly preferable to a further very sharp rise in unemployment. But a combination of falling real wages and the likelihood of unemployment well above the pre-recession level for several years to come represents an equivalent amount of labour market distress.

“While the specific labour market symptoms of economic austerity are different than initially expected the ongoing pain is no less severe as the UK workforce continues to suffer an implicit trade-off between jobs and real living standards. In this respect one must hope that the Coalition Government will not stick rigidly to its existing ‘Plan A’ for fiscal deficit reduction if much weaker economic growth makes the trade-off ever harder to bear.”

Join us on
Follow @freshbusiness