Unemployment has reached another 17-year high, eclipsing 2.62 million, with the unemployment rate rising to 8.3%. Youth unemployment (among 16 to 24 year olds) has exceeded one million for the first time since comparable records began in 1992. Inflation eased to 5% in October, thanks largely to supermarket food price wars. The Bank of England expects inflation to be back below the 2% target by late 2012. Last January’s VAT hike and this year’s commodity price rises will drop out of the year-on-year calculation. The Bank cut its growth forecast for 2012 from 2% to around 1% and signalled that it could resort to further money printing to bolster the economy.
What the commentators said
Even the Bank’s downgraded growth forecast looks optimistic, said Capital Economics. Inflation-adjusted pay is still declining at an annual rate of 3%. Inflation is set to head down but is likely to remain above pay growth for another year. The downward pressure on consumer spending and hence economic growth “is likely to remain intense”. The sharp drop in exports to the EU in the latest trade data suggest that Europe’s descent into recession “has already started to take its toll on UK exporters”. We are also “heading for a second credit crunch”, said Philip Aldrick on Telegraph.co.uk. “Banks have been unable to get funding in some wholesale markets since August” as fears over their sovereign debt exposure have grown. This implies higher borrowing costs for households and firms. Note too that the Bank’s forecasts exclude the possibility of the euro crisis escalating. All this means that the best-case scenario remains, as Bank of England governor Mervyn King put it, a “long and arduous” recovery from the 2008/2009 crisis.