Unemployment seen to reach 12-year high

By Andrew Taylor, Employment Correspondent

Published: February 9 2009 02:00 | Last updated: February 9 2009 02:00

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The number of jobless had climbed to 1.92m in the three months to the end of November and is expected to rise more steeply in the first half of this year following a spate of redundancies since Christmas.

Economists expect the total number of jobless to rise to 3m by next year to equal the heights of the early 1980s and 1990s recessions. That would mean unemployment could peak in 2010, just as Labour might be facing a general election.

Almost 40 per cent of employers have made contingency plans for redundancies over the next year, says a survey of almost 900 employers published on Monday by the Chartered Institute of Personnel and Development and the consultants KPMG.

More than a third expect to cut staff in the first three months of 2009. This is in spite of the fact companies are working hard to avoid making redundancies by freezing recruitment and cutting shift times. Some 18 per cent of employers had introduced short-time working, CIPD/ KPMG said.

Andrew Smith, KPMG chief economist, indicated that interest rate policy shortcomings created an urgent need for alternative monetary policy measures, such as “so-called quantitative easing” to prevent a grim recession becoming “something even worse”.

Deterioration in the labour market was breathtaking, he said. “Higher unemployment will weaken demand which in turn will lead to higher unemployment.”

Job prospects were “deteriorating at an alarming rate”, said John Philpott, CIPD chief economist. “The labour market outlook is clearly even worse than expected at the turn of the year... it now seems sadly inevitable that UK unemployment will top 3m before the jobs market finally starts to recover.”

About 45 per cent of manufacturers and more than 35 per cent of private sector service companies expect to shed jobs in 2009’s first quarter. This compares with less than 20 per cent in public administration and defence.

Employers “intend to keep a much tighter rein on pay increases in the coming months”, CIPD/KPMG said. Some 13 per cent had “no intention of carrying out a pay review this year”. The average annual pay rise expectation had fallen to 2.6 per cent from 3.45 per cent last autumn.

Source B

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