By Marcus Leach

With official data showing that unemployment figures dropped by 35,000 today (Wednesday) the Institute of Directors (IoD) believe that the private sector is leading the economic recovery.

Graeme Leach, Chief Economist at the IoD, said that, despite high taxes and costly regulation, it was the private sector leading the country out of the economic quagmire it had found itself in.

“In tough times the private sector is leading the economic recovery, despite high taxes and costly regulation," he said.

"Private sector employment is up 45,000 whilst public sector employment is down 37,000 in the latest quarter. Surprisingly, given the Spending Review, public sector pay continues to exceed that in the private sector. Public sector pay, excluding financial companies, stands at £467 per week compared with £459 per week in the private sector. If average public sector pay can be reduced then fewer jobs will need to be lost from the Spending Review.

"The Bank of England will also be reassured about inflation prospects with total pay in both the public and private sectors rising by just over 1 per cent. The downside of course is that inflation means real pay is falling by more than 2 per cent, which is not good news for High Street spending.”

However, despite the views of the IoD, the British Chambers of Commerce feel that the government can still do more to encourage job creation in the private sector.

“But the challenges facing the labour market cannot be overlooked," David Kern, Chief Economist at the British Chambers of Commerce (BCC), said.

"As the deficit-cutting plan forces the government to reduce employment, it is likely that the unemployment total will increase over the next year. Every effort must be made to reduce the regulatory burden on businesses and increase the flow of lending to credit worthy firms so the private sector can create new jobs.”

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