The CIPD’s revision of the economic & employment forecast, demonstrates that recovery is weaker than anticipated, but the ongoing pay squeeze is reducing the impact on unemployment.
Forecasts for the UK economic & employment growth published today by the CIPD reflect a downwards trend in comparison to the CIPD’s previous forecast (December 2010) for both GDP & unemployment.
The CIPD now anticipates the economy to grow by 1.4% in 2011 (down from 1.6% in the previous forecast) and 2.0% in 2012 (down from 2.1%). Unemployment is now expected to peak at 8.7% (2.7 million) in mid-2012 rather than 9.5% as previously forecast.
The reasons for the downward revision in the CIPD’s unemployment forecast is partly due to the lower than anticipated unemployment in the first quarter of 2011 — which reduces the baseline for the mid year forecast – & another factor is the expectation that the combined weak growth in labour productivity & modest pay rises will continue to moderate the impact of anaemic output growth on employment.
However the outlook for jobs would be affected further if economic growth is even weaker than anticipated, & if the rate of pay prices would increase this would put tremendous pressure on employers to cut their staffing costs. The more recent news of job losses in various parts of retail is of particular concern since it signifies the extent to which many businesses in high employment sectors are often dependent on consumer spending, who are now facing real challenging times.
The CIPD forecasts for economic growth, employment and unemployment — which are highlighted in the Institute’s latest Work Audit, The ‘jobs without growth’ conundrum – remain more pessimistic than the current (March 2011) forecasts from the Office for Budget Responsibility (OBR). And whilst the CIPD now forecasts a lower peak in unemployment; the revised forecast nonetheless still demonstrates that unemployment will be around 2.4 million in 2015, still 800,000 higher than the pre-recession level.
Dr John Philpott, the CIPD’s Chief Economic Adviser, comments, while the outlook for unemployment may be less bleak than initially feared the total amount of pain being inflicted on the labour market by anaemic economic growth is as severe as expected:
“Just as pay freezes and pay cuts protected jobs in the recession, the ongoing pay squeeze is helping our anaemic economy support employment. This is clearly preferable to a further very sharp rise in unemployment. But a combination of falling real wages and the likelihood of unemployment well above the pre-recession level for several years to come represents an equivalent amount of labour market distress.
“While the specific labour market symptoms of economic austerity are different than initially expected the ongoing pain is no less severe as the UK workforce continues to suffer an implicit trade-off between jobs and real living standards. In this respect one must hope that the Coalition Government will not stick rigidly to its existing ‘Plan A’ for fiscal deficit reduction if much weaker economic growth makes the trade-off ever harder to bear.”