More cheery stats from the Government today: the Office for National Statistics said UK unemployment rose to 1.97m in the three months to December, while the Bank of England said the UK was in a ‘deep recession’ – it’s now expecting economic growth to contract further and CPI inflation to fall ‘well below’ its 2% target in the coming months. The Bank’s assessment is its gloomiest to date – and suggests that it's likely to start effectively printing money before too long...
Unveiling the Bank’s latest report today, Governor Mervyn King didn't pull any punches; restoring confidence will take a long time, he warned, while the eventual severity of the recession will depend on developments around the world. The UK's growth prospects remain uncertain, he suggested, but we’re likely to see an even bigger contraction in the first half of 2009 than the 1.5% estimated for the last quarter of 2008. Global demand is slowing, said King, which is forcing businesses to reduce output and cut costs, and that’s making us less willing to fritter our money away in the shops (not unreasonably, you might argue).
As for inflation, the Bank seems even more uncertain. In the short term, it appears to think CPI will sink below the 2% target as falling commodity values and spare capacity drag down prices. However, the picture is complicated by the falling value of the pound, which has increased import costs. Although businesses are likely to absorb this for the time being, it might eventually start pushing prices up again.
Not surprisingly, all this trauma is having a big impact on the labour market. According to the ONS, the total jobless count jumped to 1.97m, while the number of unemployment benefit claimants rose by 73,900. Both figures were slightly better than economists were expecting – but it’s clearly only a matter of time before we break the 2m mark, particularly given the various redundancies announced in January (including Woolies et al). Indeed, some forecasts suggest the jobless count will keep rising for at least the next year, possibly leaving more than 3m people out of work. That's about one in ten of the working population.
So what’s the Bank going to do about it? Well, King believes all these state-sponsored measures will have an effect eventually. But in the short term, he suggested today that the Bank was willing to use the ‘full range of instruments at its disposal’ to get the system moving again – which presumably means not only more interest rate cuts, but also unconventional tools like quantitative easing.
News that the Bank may start printing money has unsurprisingly hammered sterling this morning. But as far as King’s concerned, that may be the lesser of two evils…
In today's bulletin:
Crosby falls on sword after HBOS whistleblower row
Unemployment up again as Bank admits 'deep recession'
Ashley makes approach for Blacks
Salad days no more for UK graduates
Editor's blog: Pontificating in Portmeirion