UNEMPLOYMENT is set to peak later this year before falling sharply in the years to 2016, the Office for Budget Responsibility (OBR) reported yesterday.
However, smaller departmental budgets mean the number of state sector employees will fall 730,000 from 2011 to 2016 – 20,000 more than the 710,000 forecast in November, and 330,000 above the 400,000 predicted by the OBR last March.
Overall joblessness is now forecast to peak at 2.8m, or 8.7 per cent, at the end of this year, before falling to 8.6 per cent next year, eight per cent in 2014, 7.2 per cent in 2015 and 6.3 per cent in 2016.
Claimant count predictions have been revised down 97,000 for this year to 1.65m, and down 136,000 from earlier forecasts to 1.64m, ending in 2016 with a cut of 39,000 to 1.19m.
The OBR also noted long-term unemployment remains low compared with previous recessions, though more damage may occur as youth unemployment has risen eight percentage points since 2008.
A growing private sector should create 1.7m new jobs between 2011 and the start of 2017, the OBR believes.
After taking out the 730,000 jobs lost in the state sector, that leaves net employment growth of one million.
“Our latest forecast suggests that there will be slightly less departmental spending and therefore less money available to pay government employees at the start of 2017 than we thought in November,” the OBR said.
“Other things being equal, this would reduce general government employment by a further 30,000 in 2017 relative to our projection in November.”
However, the analysis explains, public sector wages will be lower in 2017 than previously expected allowing departments to afford 10,000 more staff, leaving a fall of 20,000.
Because many of these job losses, particularly in local government were “front-loaded” – that is, implemented toward the start of the period of reduction – the pace of job losses in the public sector will be much lower from now on than it has been for the past year.
State jobs fell by an average rate of more than 80,000 per quarter from January to September of last year, the OBR found, meaning employment should fall by an average of 30,000 in each three-month period until the start of 2017.