THE NEGATIVE impact of the Eurozone crisis on the City will damage the whole of the British economy, economists warned this morning.
Financial sector employment fell by 14,000 in the second quarter, Ernst and Young’s Item Club said, while it expects no or little recovery in City jobs next year.
“Given the extent to which highly paid employment in the sector underpins consumer spending, tax revenues and house prices in the UK, the projections for financial services employment is concerning,” explained senior Item economist Dr Neil Blake.
Even if the attempted crisis remedy is implemented, knock on effects for the financial sector “will be far-reaching, impacting employment, increasing loan write-downs by £3bn, and reducing lending,” which will hamper the UK recovery further, Item warned.
“The government has set out to de-risk the sector and make the UK less reliant on it in order to make the economy more secure. Unfortunately, if no other sectors step into the resulting gap, prosperity will go down across the country.”
Unemployment throughout the UK will rise to 8.3 per cent next year before peaking at 8.4 per cent in 2013, the economic think tank said.
The Centre for Economics and Business Research (Cebr), too, forecasts rising unemployment in most regions.
Jobs growth in London will only start rising in 2015 with unemployment remaining above the national average for its entire five-year forecast period, the Cebr warned today.
Consumers are unlikely to boost the economy, according to the Resolution Foundation. Its research, out today, shows 32 per cent of adults have cut spending in the last year and 19 per cent intend to in the next 12 months.
Business confidence, too, hit a 30-month low in October. The Lloyds Bank Corporate Markets’ business barometer showed a net balance of minus 15 per cent feel optimistic on the economy – down 22 points on last month.
In a bearish set of forecasts, Item showed chancellor George Osborne missing his deficit reduction target.
Stubbornly high government spending and weaker than expected economic growth have cast doubt over Osborne’s ability to cut the deficit. The first estimate of GDP growth in the third quarter of the year is released tomorrow, with economists expecting an expansion of around 0.3 per cent.
Growth for the whole year will fall short of one per cent, Item expects, with a 1.5 per cent expansion in 2012.