By Claire West
Dr John Philpott, Chief Economic Adviser at the Chartered Institute of Personnel and Development (CIPD) comments on official labour market statistics for the October-December 2010 quarter published earlier today by the Office for National Statistics (ONS) and also comments on the latest quarterly Inflation Report from the Bank of England:
“Although the latest labour market data are in line with expectations, further evidence of fewer people in work, higher unemployment and more people becoming economically inactive is a clear sign that the jobs situation was continuing to weaken toward the end of 2010, well before the impact of the coalition government’s spending cuts and tax rises start to take full effect.
“It is encouraging that the number of people being made redundant stabilised around the turn of the year and that the number of job vacancies increased slightly. However, forward looking survey indicators suggest that redundancies are now on the rise, especially in the public sector, while recruitment is easing across most sectors. All this points to a ‘job-loss recovery’ and a further increase in unemployment throughout the remainder of 2011 at the very least. The current unemployment cycle is set to exhibit a ‘twin-peak’, the jobless total having initially levelled off in 2010 following the recession.
“It is encouraging, however, to see an increase in the number of employees working full-time. However, the fact that this is almost exactly offset by a fall in the number of part-time employees suggests a compositional effect with more part-timers switching to full-time hours rather than a sudden surge in the creation of full-time jobs. Such a switch would be consistent with some reversal of the ‘hoarding’ of labour on short-term hours observed during the recession.
“A weakening jobs market, muted economic growth, ultra-tight fiscal policy, plus well above target price inflation and the greater prospect of an interest rate hike sometime later this year provide all the ingredients for a ‘perfect storm’ to hit the UK economy. No wonder Bank of England Governor Mervyn King struck a sombre note today when downgrading the Bank’s near term forecast for economic growth, while also keeping us guessing on whether the Monetary Policy Committee will hike interest rates anytime soon. As he faces into this gathering stoarm, the Chancellor must plan next month’s budget. It will be crucial for the job market that he succeeds in delivering the planned ‘budget for growth’ at a time of great austerity. If he finds this an impossible task, he may yet have to reach for a fiscal ‘Plan B’.”