UK Unemployment Hits 7 Year Low

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During a recession, firms may have to let staff go in order to reduce costs and keep the business solvent whilst waiting for an upturn. This is usually a move taken with great reluctance and not initiated until the finances of the business dictate it, so the unemployment wave lags the onset of the recessionary wave. Once orders pick up, businesses will need to take on staff to meet increased demand, but for pragmatic reasons this is delayed until orders are in hand and the managers are certain that the recessionary wave has passed. The usual pattern has not been seen in the aftermath of the Global Financial Crisis, generally which is shown by the high unemployment within the Eurozone, for instance. Largely, this is because the hangover from the crisis left investment funds in short supply as banks struggled to improve balance sheets and (arguably) as a result, global demand has been weak and susceptible to shocks which would otherwise be taken in stride.

The relatively high level of unemployment; low work participation rate; and significant number of people wanting to work more hours than are on offer have been among the reasons cited by central banks for leaving interest rates at historic lows, but US job creation data and UK employment data seem poised to change this in the not too distant future.

Figures just revealed by the UK’s Office for National Statistics (ONS) show that unemployment fell to its lowest level since Q2 2008 in the third quarter of this year. It currently stands at 5.3%, meaning that 1.75 million people are currently claiming job seekers’ benefit and are “officially” unemployed. The number dipped by 103000 during Q3. The number of people in work climbed by 177000 over the Q2 figure, taking the active workforce to 31.2 million and representing a hike of almost 420000 over the comparable period in 2014.

Inflation in the UK is still much weaker than the target value of 2%; indeed it currently stands at minus 0.1%. A raise in interest rate could further suppress inflation, but the employment data would seem to favor the commencement of the interest rate normalization process.