UK economy has hit turbulence again

Allister Heath
AFTER a run of good news, the UK economy has hit choppy waters once more, though hopefully conditions will soon improve again. Growth bounced back between February and October 2010. Since then, manufacturing has remained buoyant; but services have slowed, especially in December (the snow was bad). Construction is slowing. The services sector purchasing managers index for December was the single worst piece of data for the UK economy I have seen in ages – fortunately, January will be better, but this blip in the recovery is unfortunate.

Yesterday’s jobs data was downbeat, albeit not irreparably so from a longer-term perspective. Claimant count unemployment reached 1.616m in January 2010. It then fell until July, rose slightly, and has fallen back since (to 1.456m) in December. The number of people on the dole thus dropped nine per cent last year, a decent result.

Less good were the survey-based measures. Employment bottomed out at 28.843m in the three months to February 2010. By August, it had bounced back to 29.158m, before falling back down to 29.089m in three months to November. Nevertheless, we remain up 246,000 since February. This is not as good as it sounds: full-time jobs are down 4,000; part-time up 250,000. This is usual at this stage in the cycle but underemployment is rife.

Public sector jobs peaked in December 2009 at 6.097m and are now down to 6.014m, a drop of 83,000. Private sector jobs troughed at 22.764m at the end of 2009. By the end of June, private employment had reached 23.111m, staying put in September. For all the disastrous headlines yesterday, private jobs were still up by 347,000 over nine months. Extra jobs may have been lost in the run up to Christmas, but the private sector can clearly easily mop up losses in the state sector. Whether it can grow as fast as the overall number of new people entering he jobs market is less certain. Unemployment grew until February 2010, hitting 2.486m. It then fell to 2.448m by August. It is now back up to 2.498m, slightly higher than at the start of the year. More than the entire increase can be accounted for by a rise in joblessness among 18-24 year olds, suggesting schools and universities are failing to teach the right skills.

This impression is reinforced by another fact: the number of UK-born people in employment was 25.41m, up 100,000 on a year earlier; yet the number of non-UK born in employment was 3.886m, up 204,000. A record number of overseas-born people have jobs – this group has more than recovered from the recession, led by growth in workers born in Eastern Europe (a record 593,000 now work here), Africa and India. This performance is to the great credit of the overseas-born (of which I too am one) – but there is evidently something wrong with the British educational system and the motivations, ability and incentives of parts of the workforce.

Despite the present choppiness, the UK economy will again create more jobs than are lost this year. Austerity policies are essential to stave off bankruptcy. But the government’s inability to articulate a pro-jobs, anti-red tape policy to make it easier and less risky for firms to hire people is a major failure. Its educational reforms are being slowed by opposition from councils, bureaucrats and unions. Its welfare reforms would boost employment but will take ten years. For the sake of Britain’s jobless, David Cameron must rediscover a sense of urgency.
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