Will unemployment stay low? - (08.09.02)

The UK is certainly in some sort of slowdown. There is no debate that manufacturing is suffering from a prolonged recession and that major multinational companies are cutting back work forces. So why does UK unemployment remain low, with no sign of any factors that will cause it to increase.

As econo-my.com predicted earlier this year, average earnings have slowed down and unemployment hasn't increased. Our explanation that announced job losses tended to be more posturing than employees leaving seems to have had some basis in reality. It has been suggested that unemployment is a lag indicator, with the rise yet to come. This seems unlikely with employment rising and vacancies stable, as this lag only exists if people laid off delay claiming benefits. The use of the ILO figures rather than claimant count also suggests no hidden unemployment jump just around the corner.

Slow economic growth itself may just be temporary therefore. Instead of an unemployment lag, maybe the UK is experiencing a growth lag, with expectations of a recovery delayed for the short term due to the state of the international economy. Can confidence in the strength of economic management in the UK really be so strong?