Unemployment total may be more than 2 million by Christmas
Credit crunch triggers biggest rise since 1990s
London hit hardest by 'worse than feared' figures
Ashley Seager, Julia Kollewe and Nicholas Watt in Brussels
Thursday October 16 2008
The number of people out of work rose at the fastest rate since the recession of the early 1990s in the three months to August, prompting fears that the jobless total will break through the 2 million level by Christmas.
In the latest sign of the damage to the real economy caused by the 14-month credit crunch, the Office for National Statistics said the jobless total on the broad Labour Force Survey measure jumped by 164,000 in the three months to August from the previous three months – the biggest rise since June 1991 – to stand at just under 1.8 million. This is the highest level for nearly a decade. The jobless rate leapt to 5.75% from 5.2%, also the largest change since 1991.
“These numbers are truly horrendous and much worse than I had feared,” said David Blanchflower, a labour market expert and member of the Bank of England's monetary policy committee. He told the Guardian his earlier prediction that unemployment would rise to 2 million by Christmas now looked conservative. “Unemployment will be above 2 million by Christmas.”
The figures referred to the period just before the latest and most damaging chapter of the global credit crisis, which experts say will push the jobless total higher still.
Blanchflower said he was particularly worried at the 56,000 rise in the number of young unemployed people, the biggest increase since records began in 1992. “These are school leavers who are unable to get a job or claim benefits, which is why the claimant count has not risen even faster than it has,” he said.
The number of people claiming jobless benefits rose by 31,800 last month to 939,000, the eighth monthly increase in a row. August's rise was revised higher to 35,700 – the biggest since December 1992. Job losses were concentrated in retail and hotel and catering sectors, as well as manufacturing and financial services.
The figures also revealed that the hardest-hit area in the country was London, where the unemployment rate rose faster than anywhere else fastest as City workers began to lose their jobs. The capital, the north-east and north-west have the highest unemployment rates.
Nigel Meager, the director of the Institute for Employment Studies, said: “No part of the country is spared. Much attention has focused on high-end jobs in the City. In an economic downturn, however, the real human cost is likely to hit lower skilled workers who find it harder to move into another job and have less of a financial cushion to see them through difficult times.”
Gordon Brown, speaking during an EU summit in Brussels, said: “We will do whatever we can to ensure that people can stay in their jobs, we will do whatever we can so that people who lose their jobs can get new skills for the next job. We will do whatever we can to create opportunities.”
He promised to combine the fight against climate change and unemployment by broadening training to increase the number of people insulating lofts.
“So I just give you one example of how we can combine to meet the challenges of climate change and cut people's gas and electricity bills and create the opportunities for work and training for that work,” he said.
However, economists say that with the economy slowing, jobs will be lost faster than the government can create them.
“With the UK heading into recession, we expect unemployment to rise by a total of 1.5 million to around 3 million, or 9%, by the end of 2010,” said Vicky Redwood of Capital Economics.
The Liberal Democrats' work and pensions spokeswoman, Jenny Willott, said the government must switch its attention to unemployment now that the bank rescue package had been agreed.
“Real families across Britain are suffering, not just those working in the Square Mile. As the number of vacancies shrinks, it will be harder and harder to get people back into work. It will not simply be a case of retraining the unemployed if there are no jobs for them to return to,” she said.
Brendan Barber, the general secretary of the TUC, called on the Bank of England to cut interest further than the half point reduction it made last week. “We are now seeing the effect of the credit crunch on the rest of the economy. I fear that the whole economy will soon feel the impact of the problems in the banking sector,” he said.
The ONS figures also showed that average earnings increased by a meagre 3.4% in August, the lowest figure for five years.
“Pay pressures remain very subdued,” said Philip Shaw, chief economist at Investec. “The labour market appears yet again not to be an inflationary threat to the economy which helps to justify the cut in interest rates last week.”
Unemployment is set to hit the City hard. Thousands of jobs have been slashed since the collapse of Lehman Brothers a month ago, with HSBC reducing its workforce by 1,100, UBS cutting 1,000 jobs and Bradford & Bingley getting rid of 300 members of staff.
A report by the recruitment firm Morgan McKinley out yesterday said that the number of City workers looking for a job rose 42% in the month to September, as firms make cutbacks. But it found new job vacancies fell 14% last month.
Robert Thesiger at Morgan McKinley said: “Recent events have affirmed that changes within the hiring market can be rapid and on a large scale. The influx of candidates coming on to the market last month, largely as a result of the collapse of several City institutions as well as general instability within the industry, is evidence of this.”
The Centre for Economic and Business Research predicted earlier this week that City jobs will decline by 28,000 in 2008 and a further 34,000 in 2009. The worst-hit sector will be corporate finance, which is likely to lose half its 15,000 employees over the next two years. Employment in derivatives is also set to fall by 46%
The report also predicted that legal and professional services, insurance, fund management, securities and equities sectors will all cut the head count by between 10% and 20%.
“The chances for a strong bounce-back in the City from 2010 onwards also appear to be slim,” the report added.
Richard Snook, a senior economist at the research body, said: “The City will be hard-hit by the crisis; we expect it will be set back by a decade, with 62,000 jobs lost over the next two years.”