Economic Outlook Worsens as Unemployment Increases

January 23, 2009 12:00 am Published by Leave your thoughts

The effects of the deepening economic crisis on unemployment may be worse than first anticipated. According to the TUC, unemployment could hit two million by next year. They are also forecasting that the number of people out of work for at least a year could almost double to 700,000 by the end of 2009. The Ernst & Young Item Club released even gloomier figures this week. The financial firm is predicting that unemployment levels will break through 3 million by the end of 2010 and reach 3.4 million the year after. Many had been predicting a sharp rise in the unemployment figure, but the rise recently announced has shocked even the most sceptical of experts.

CIPD economist John Philpott said: “This time last year, in the face of some scepticism, the CIPD warned that 2008 would be the UK’s worst year for jobs in a decade. It was, but in retrospect it will be seen as merely the slow-motion prelude to what will be the worst year for jobs in almost two decades”

“Overall, the 18-month period from the start of the recession in mid-2008 until the end of 2009 will witness the loss of around three quarters of a million jobs, equivalent to the total net rise in employment in the preceding three years.”

Currently, the economic downturn is already having a significant impact on employment. Figures released by the Office of National Statistics show the number of people claiming unemployment benefit increased by 31,800 in September to 939,900, a rise of 2.3%. It is the eighth consecutive monthly rise and the highest figure for almost two years. According to official statistics, there were 1.8 million people out of work in the UK in November. That figure was the highest since 1997, taking the overall unemployment rate to 6%.

The people who are likely to be most affected by the worsening economic situation are young unskilled workers and minimum wage employees. The Christmas period has witnesses the closure of numerous high street stores, and manufacturing jobs are also being threatened. The UK auto firms are set to halt production and make 30,000 workers redundant within a matter of weeks. In October 2008, Jaguar Land Rover, announced it was cutting 200 jobs across the UK. The company, taken over earlier this year by Indian giant Tata Motors, is seeking voluntary redundancies from its 16,000 strong workforce.

Several large national companies are currently negotiating with workers to take pay cuts. JCB recently cut pay to some workers in return for limiting redundancies. Proposals for pay cuts by Corus and Vauxhall have been rejected by the unions. In a move that could further affect low income workers, the British Chamber of Commerce is pressing for a halt to the annual rises in the national minimum wage to help businesses to cope with the downturn.

The overall picture of the economy over the next few years also looks problematic. Barclays Bank are now forecasting that the British economy will dive between 2-4% this year, unemployment will go from 1m to nearly 3m and house prices will drop another 15%. In the fourth quarter of 2008, UK manufacturing fell at the same rate as in the 1980-82 slump.

In the US, the economic downturn is also being felt. The US Department of Labor reported that employment fell by 524,000 over December and by 1.9 million over the last 4 months of 2008. By the end of 2008, the US unemployment rate had risen to 6.8% from just 4.4% two years ago. The three largest auto companies are also on the verge of bankruptcy, which could put nearly 3 million workers out of work.

If, as expected, unemployment climbs to levels not seen in the UK for over a decade, mass joblessness may once again become a major political issue. This will present a serious challenge for the political party in office after the next election. The ideological battleground of the 1980s could again become a reality.

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This post was written by Christopher Vasey

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