UK Unemployment Figures Do Not Tally with UK GDP

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UK Unemployment Figures Do Not Tally with UK GDP

UK Unemployment Figures Do Not Tally with UK GDP



Yesterday's UK unemployment figures are the first piece of good news that the coalition has had regarding the economy for quite some time.

Yesterday's UK unemployment figures are the first piece of good news that the coalition has had regarding the economy for quite some time.

The positive data follows a few months of rising employment, with the headline unemployment rate declining once again.

This indicates that we may have reached a top of the unemployment cycle. However, regrettably, it may only be a blip in a longer-term trend.

The recent economic data has been consistent with a flat-lining economy where business and consumer confidence is at a low.

Businesses are recruiting to some degree, but many are still holding back from making larger long-term commitments by refraining from investing heavily in new staff.

An indication of this was yesterday's rise in claimant counts, and once the impetus from the Olympics is over, it's back to reality.

This is why the Bank of England continues to consider other unconventional policy measures that they could use to boost growth.

For the second month in a row, they even discussed the possibility of reducing the base rate from 0.5% to 0%.

Aggressive Money Printing?

The major issue with taking further action to boost growth, via QE or reducing interest rates, is that there's little more they can do before going into all out aggressive money printing. This would cause inflation to spike spectacularly.

Unfortunately, the tinkering on the continent is not going to resolve the problems in the Eurozone any time soon. Until they have sorted out those issues, and their economies recovery meaningfully, the UK is going to struggle.

The current bright spot in the employment cycle seems unlikely to last. Later this year we could easily be creeping back up towards the 3 million unemployed mark.

It will be interesting to see next weeks first reading of Q2 GDP as it seems likely to show a complete disconnect with the improved employment situation.

This reiterates the possibility that, whilst the private sector might be taking up the slack from the public sector losses, this isn't actually translating into growth.

Nevertheless, we've had some positive news this week, the markets have perked up and we might even get something that resembles a summer.

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By Simon Denham, 19 July 2012


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