Youth Hit as U.K. Jobless Rate Rises
Bank of England lowers its growth forecasts
By ILONA BILLINGTON and ALEX BRITTAIN
LONDON—U.K. unemployment rose again in October, while the number of young people without a job topped one million at the end of September, data showed Wednesday, increasing political pressure on Prime Minister David Cameron to come up with a solution to an issue that has plagued consecutive governments.
The disappointing data came as the Bank of England lowered its growth forecasts, blaming the economy's weakness on the euro-zone debt crisis.
The overall rise in the jobless total adds to growing pressure on Chancellor of the Exchequer George Osborne to water down his deficit-reduction plans, as a catalogue ofdevelopments threaten to push the U.K. economy back into recession.
Within that figure, the number of unemployed people between 16 and 24 years old, known as youth unemployment, rose 67,000 in the three months to September to 1.02 million, a rate of 21.9%.
That is the highest level, and rate, for this group since comparable records began in 1992. Still, an ONS representative said earlier that noncomparable and nonseasonally adjusted data show youth unemployment was above one million in 1984, 1985 and 1986.
The widely watched claimant-count measure of unemployment—which measures the number of Britons claiming jobseekers' allowance—rose by 5,300 to 1.60 million, a rate of 5%. That compared with a revised 13,400 increase and a rate of 5% in September.
Unemployment is expected to continue rising for some time as government spending cuts continue, and amid a lack of investment in the private sector, exacerbated by the deepening euro-zone debt crisis.
Combined with a lack of growth in both the public- and private-sector job markets, consumption, manufacturing and export growth are all failing to live up to the expected levels, and are pulling the economy back toward contraction.
The economic trauma across the euro zone has left the U.K.'s largest trading partner struggling. Mr. Osborne has said repeatedly that a resolution of the crisis would be a big boost for the U.K. economy.
Separately on Wednesday, the Bank of England said the fate of the U.K. economy over coming years will be closely linked to that of the euro zone, which lacks a credible plan for resolving its crisis.
In its quarterly inflation report, the central bank's Monetary Policy Committee cut its growth forecasts, and said it now expects the economy to expand just 1% in 2012, stagnating from this quarter until the second half of next year. The BOE said that as a result of weak growth, Consumer-price inflation is likely to fall sharply in 2012 and be below 1.5% year-to-year in two years—undershooting the target level of 2%. That indicates that the BOE is likely to consider providing more stimulus after its current program of bond purchases using freshly created money is completed in January.
At a news conference following the release of the report, BOE Gov. Mervyn King said that while the recent weak performance of the U.K. economy had been the result of a squeeze on household incomes by high food and energy prices, its future prospects are closely tied to the fate of the euro zone, its largest export market.
"External factors are providing an unwelcome drag on growth," he said. "Unfortunately, the prospect of a lasting improvement to the position overseas seems remote until the external debt position and loss of competitiveness of countries in difficulty is tackled."
The BOE said that it sees "no meaningful way" to assess the likely impact of "extreme outcomes" to the currency area's crisis, so growth could turn out to be even weaker than its lowered forecasts.
"The risk to the bank's new lower growth forecast is that it is still too optimistic," said Chris Williamson, an economist at Markit Economics. "There is therefore clearly a significant risk of a contraction in the final quarter of this year and early next year, with a steep downturn possible if the problems in the euro area worsen."
Mr. King stressed that with the outlook for growth dominated by events in the euro zone, "there are limits to what domestic monetary policy can achieve." In a further attempt to modify expectations of further stimulus, he said the BOE won't attempt to "fine tune" the decline in the inflation rate towards its target.
In October, the bank added £75 billion ($118.67 billion) to its program of buying U.K. government bonds and other assets to boost demand, leaving the total at £275 billion. It has kept its key interest rate unchanged at 0.5% since March 2009.
In the inflation report, the BOE said the euro zone has yet to produce a "credible and effective" response to the crisis, and while Mr. King declined to offer suggestions about what a credible plan would involve, he made clear that it would have to address the fundamental problem facing troubled members of the currency area, which is a loss of competitiveness that can't be addressed through a currency devaluation.
Mr. King was adamant that the euro zone's main difficulty isn't an absence of liquidity—or short-term access to funds—and that it isn't the European Central Bank's job to resolve the crisis. Instead, he said, it is up to governments to decide whether they are prepared to provide financial help to those euro-zone members with large current-account deficits.
Since the start of the financial crisis in 2007, the BOE has pinned its hopes for growth on rebalancing the economy toward exports and business investment, and away from debt-fueled consumer and government spending. In the report, the BOE acknowledged that the troubles in the U.K.'s main export markets mean exports will now play a more modest role in driving growth.
"The scale of the imbalances means that there is likely to be a prolonged period of subdued growth within the euro area," the BOE said. "Given the headwinds impeding demand in the euro area, net trade is likely to provide only modest support to U.K. growth."
The BOE is hoping that consumer spending will pick up as inflation eases and real wages rise from next year. But with unemployment rising rapidly, Britons may struggle to oblige.
— Ainsley Thomson and Paul Hannon contributed to this article.
Write to Ilona Billington at ilona.billington@dowjones.com and Ainsley Thomson at ainsley.thomson@dowjones.com
http://online.wsj.com/article/SB10001424052970203611404577041503050935164.html
No comments:
Post a Comment