The Bank of England released its latest quarterly inflation report today, and (unless you’re a confirmed insomniac in search of bedtime reading material) there wasn’t much to celebrate: it’s just downgraded its economic growth forecast for this year and next, while hiking its estimate of inflation. So although today’s monthly employment data actually showed another rise, our respite is likely to be brief – the Bank has acknowledged that the effect of all this austerity will be to depress the economy as a whole, which will push unemployment back up again. This month has been a laugh-a-minute on the economic front, hasn’t it?
The Bank’s previous growth predictions in May sounded pretty optimistic at the time, and even more so after George Osborne’s Emergency Budget. Governor Mervyn King admitted today that the outlook is weaker now than it was then (although he doesn’t think the Budget made a ‘significant difference’ to the chances of a double-dip, and may actually have helped matters by reducing the chances of higher interest rates in the long term). So now the Bank is predicting 2011 GDP growth of about 2.5%, as opposed to about 3.4%. It also expects CPI inflation to remain above its 2% target (it’s currently at 3.2%) until at least the end of 2011, thanks to Osborne’s VAT hike and rising input costs.
Today also saw the release of the latest job market figures, which on the face of it look pretty positive: unemployment fell by 49,000 to 2.46m, the biggest drop in three years, reflecting the economy’s recovery since Christmas. But there was plenty of cause for concern buried in these numbers, too: the claimant count (often seen as a better reflection of the current state of affairs) fell much less than expected – it was down just 3,800, to 1.46m. And the drop in the overall count was due in no small part to a big rise in part-time jobs (up 115,000); that might make the jobless number look better, but it doesn’t mean demand has recovered.
In fact, it suggests many employers are still too nervous about the coming months to make permanent hires – and who can blame them? The Bank made it very clear today that it thinks the forthcoming spending squeeze and weaker confidence (thanks partly to reports like this, presumably) is going to depress output across the board. Hence why Merv isn’t too worried about inflation: he reckons CPI will drop ‘significantly’ in 2012, because of all the spare capacity in the economy and pressure on pay from the high level of unemployment.
On the bright side, at least the Bank still thinks we’ll avoid slipping back into recession. Although a ‘choppy’ recovery doesn’t sound much fun either – and the Bank might downgrade its forecasts again in three months…
In today's bulletin:
Growth down, inflation up - Bank of England adds to gloom
Desmond makes his intentions clear with Five management cull
Old ideas generate fresh profits for Disney
Editor's blog: Getting the UK out of the doldrums
Work life devours family dinner times