More misery

 
Julian Harris
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STUBBORNLY high inflation and unemployment have pushed Britain’s misery index to record levels, according to official data released yesterday.

The misery index – used by economists to estimate the unhappiness spread by joblessness and the rising cost of living – almost certainly jumped to a fresh high last month, as an extra 37,100 people joined the dole queue.

Unemployment rose by 38,000 in the second quarter of the year, to total nearly 2.5m people – 7.9 per cent of the workforce.

The misery index is calculated by adding unemployment as a percentage of the workforce to the consumer price index (CPI). The most recent readings put the figure at 12.3, higher than at any time since the CPI began over 14 years ago.

Price pressures were surprisingly harsh in July, coming in at 4.4 per cent (CPI), according to data released on Tuesday.

The index could hit the demoralising 13 mark in coming months, as CPI inflation stretches to five per cent and unemployment edges back up to eight per cent – the same level as at the beginning of 2010.

Analysts say the jobs market has now taken a turn for the worse, threatening to reverse progress made earlier in the year.

“The labour market has decisively turned,” commented Andrew Goodwin of the Ernst & Young Item Club. “We’re expecting to see a peak of close to 2.7m in unemployment next year.”

Some analysts say that changes to the benefit system are warping the figures, however. “Ongoing classification changes compounded the soft patch surge in claimant count,” said Nomura’s Philip Rush, also noting that thousands have moved from “inactive” to “unemployed” in the figures.

The inactivity level fell by 23,000 in the quarter. Furthermore, the number of people in employment rose by 25,000. In the year to March, the private sector added 520,000 new jobs, while 143,000 were shed from the government sector. Total pay, meanwhile, rose 2.6 per cent in the second quarter of the year compared to a year earlier.

Nonetheless, yesterday’s downbeat news -- compounded by the ongoing debt crisis in the Eurozone, stock market collapses and a slowdown in the global recovery – has prompted the Bank of England to consider a controversial second round of quantitative easing dubbed “QE2”.

“Further asset purchases might … become warranted were some of the downside risks [to the economy] to materialise,” argued some of the Bank’s senior officials at their August meeting.

While a few other members of the monetary policy committee (MPC) remain concerned that QE2 would stoke inflation even further, governor Mervyn King has made positive noises about the move.

“If we need to we can carry out more asset purchases,” King said last week.

Startled by recent bearish news, the Bank’s MPC took a notable turn towards its doves’ side of the argument in August.

The two members who had previously voted for a small (0.25 per cent) step towards normalisation in Bank rate -- Spencer Dale and Martin Weale -- this time joined governor King in voting for no change in interest rates.

The surprisingly dovish minutes knocked sterling to a low for the day of $1.6352, although it later pared losses to reach $1.655.

September gilt futures rose after the Bank’s minutes were released, reaching 129.28, a spike of 0.86 per cent.