Soaring unemployment creates Election headache

UK firms are not expecting a recovery until the end of next year. Bad news for Gordon Brown...

Last Updated: 31 Aug 2010

The UK recession is going to run and run, according to the British Chambers of Commerce. In its latest quarterly survey, its members predicted that our economy will shrink by more than 3% in 2009, with unemployment continuing to climb to a high of about 3.2m in the third quarter of 2010. A gloomy outlook indeed – particularly if you’re the Prime Minister and the Labour Government, who will have to call a General Election well before then...

The BCC survey, which collected data from over 6,500 firms, did at least have surprisingly positive news from the service sector. OK, so the numbers are still heading in the wrong direction, and remain well below historical norms. But at least the rate of decline appears to have slowed right across the sector. ‘Fragile gains’ these may be (as the BCC was quick to point out) but at least it suggests that some kind of recovery may be in sight - albeit a long way in the distance.

However, it’s a very different story in the manufacturing sector, which is still going downhill at a fairly rapid rate. Exports have now fallen to a 10-year low, despite the sliding value of the pound (which ought to make our products more attractive, all other things being equal). ‘Manufacturing is still being hammered and exporters see little light at the end of the tunnel,’ says BCC boss David Frost. ‘Limiting the damage to our manufacturing base must be a national priority.’

The figures probably won’t come as a huge surprise – almost everyone seems to agree now that unemployment will climb above the 3m mark (we’re currently just above 2m), with the economy continuing to shrink dramatically. Well, everyone except the Government, that is – the Treasury is yet to downgrade its ludicrously over-optimistic forecasts in the PBR, although recent noises suggest it may well do so soon.

But the prevailing gloom will only increase the pressure on Alistair Darling to pull a rabbit out of the hat in the Budget, coming up in a fortnight. Presumably the Labour leadership was crossing its fingers that the economy would start to pick up before the PM is forced to call a General Election next year, but this survey suggests that’s highly unlikely. Unless they have a Plan B, Brown and Darling may be boosting the jobless count themselves some time next year...

In today's bulletin:
Soaring unemployment creates Election headache
Turbulence ahead for BA over pay and rations
Pound store looking up thanks to Cheryl Cole's bikini
Innocent not guilty after Coke deal
Chancellor for the day: the LSE's Howard Davies

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