a The Bank of England says the recession is already there and could continue throughout next year and beyond. It’s a bleak outlook, eased only by the bank’s Monetary Policy Committee indicating that the downturn is unlikely to be as bad as expected, although mortgage payers were shaken last week with a 0.75 percentage point increase in the base rate.
Interest rates will peak at less than 5.25% in previously expected financial markets – between 3% and 4% – which means the recession, rather than the longest in 100 years, will be short and shallow.
In a way, it’s embarrassing that the British economy could be pushed into recession by low interest rates. But that’s what happens when your growth engine generates the same horsepower—and boasts the same reliability—as an Austin Allegro.
The bank’s weak outlook chimes with most industry surveys, which show the UK has not shrunk as much, at least not in the way seen in previous recessions, as a recession.
The labor market symbolizes malaise, it seems to be in rude health and in very poor condition. Most people who want a job, and can do a job, have a job. It may not always be the best job or what they want, but they have a job.
Conservative MPs, who are under pressure to explain why 12 years of Tory policies have done nothing to improve the economic outlook, regularly echo the unemployment rate, which is at its lowest level since the 1970s.
To counter the misinformation from this simple statistic, a report later this week will show how unemployment is artificially declining due to the huge number of people who are no longer looking for work, because they are either sick or tired of early retirement.
The report is the starting point for a new commission on the future of employment support, which will bring together “experts from business, public services and civil society to develop a blueprint for reform.”
Like many committees, it can write their conclusions in a few weeks given how much we know about the government’s failures and the measures needed to improve the situation. But she has to prove that she has considered all options, so it may be a few months before her results see the light of day.
Interestingly, the preliminary report shows how the UK has been “among the worst employment recovery in the world, fueled by a shrinking workforce and inability to access effective employment support”.
Sponsored by the Institute for Employment Studies (IES) and the philanthropic arm of fund manager Abrdn, the report says the finding earlier this year remains – that the UK is almost unique internationally for the number of employees under the age of pre-pandemic levels. The recovery is the third worst in the developed world, after Latvia and Switzerland.
As our government navigates in search of an answer, the report says that Latvia and Switzerland are improving rapidly. “By early next year, the UK will likely be the only country in the developed world with fewer jobs than it did in 2019,” she says.
The results are much more comprehensive and detailed than can be discussed here, but with the Bank of England saying the main reason it raised interest rates was due to a shortage of workers, they are important to the debate about the economy.
It became clear last week that interest rates were not raised to counter the inflation caused by rising energy prices in global markets. The main reason is to create a recession that will put 500,000 people on a waiting list for benefits, thus undermining those who demand higher wages.
Raising wages to offset higher inflation is a “second round effect” that central bankers say must be stopped, or else companies will have to raise their prices, leading to more inflation. Only an increase in unemployment can undermine people’s appetite for a fight over wages.
Except, as Tony Wilson, president of IES, has spent most of the past year trying to persuade ministers, they can increase the supply of labor by tempting the return of 500,000 or more people who are no longer looking for work.
The endless Tory infighting means that no change has been made to the way Britain treats those who want to work but find they can’t, either they need a nice reintroduction after Covid or because they are over 50 And, like many millennials, they have reconsidered their delivery. The time and mental well-being of an employer driving slaves. Brexit has, of course, exacerbated this dire situation.
The Sunak/Hunt budget will not provide an answer. Like the Bank of England, it will follow the miserable path we all walk – toward recession.