The Ticking Time Bomb

With all the chaos in the eurozone recently, coupled with concerns in the US about stagnated growth and stubbornly high unemployment, it is little surprise that there are knock on effects in the UK economy. These external influences coupled with a resolution for the Government to stick to ‘Plan A’ mean that various business groups are now clamouring to scale back their forecasts for GDP growth for this year and for 2012 - and who can blame them. We are certainly living in an uncertain world at present.

Unemployment certainly remains a worry. Recent figures from the Office of National Statistics revealed that unemployment has already risen to its highest level for 17 years, rising to 8.3% or 2.62m. Specifically youth and long term unemployment remain a particular concern with these figures rising dramatically. The number of 16-24 year olds out of work has reached 1.02 million (21.9%).

You may recall, from the blog I wrote in May, about my concerns for a rise in unemployment in the future. I suggested that unemployment is a lagging indicator of the economy and had yet to reflect the impact of the austerity measures - the slowdown in consumer spending and the pending cuts in the private sector. I further speculated that the private sector would be unable to fully compensate job losses in the public sector. Economists seem to agree with me. John Philpott, chief economist at the CIPD said the latest figures ‘confirms that the private sector just isn’t creating enough jobs at present to offset public sector job cuts’. Well I think this will remain true but worryingly with GDP so weak I can’t see how we can expect to see anything but depressing statistics on the job market for the next year or so at least. And with higher unemployment of course there are lower tax returns and consequently less income and this is certainly going to impact on the Chancellor’s deficit plans.

In its latest quarterly economic forecast, the CBI predicted that unemployment will continue rising next year, peaking at 2.75m in Q4 2012. Accountancy group BDO has predicted a worsening situation in the labour market with its Employment Index falling to 93.4 in October from 95.9 in September. This is the first time this year that the index has fallen below the crucial 95.0 mark, showing that hiring intentions across the board are likely to remain weak.

So what’s to be done? Well I think now is the time to be proactive. I’m in agreement with CBI and some of the ‘Plan A plus’ proposals which look at many measures but includes proposals  to target tackling youth unemployment  and investing in education and skills. We also need to think of some plans to tackle long term unemployment and give people the confidence, skills and resources to get out of this vicious cycle.

This is a good start. I don’t think we can afford to sit around with a wait and see attitude.