Jobless toll to rise again, says IMF, as leaders vie for votes

Published on Monday 23 November 2009 21:58

UNEMPLOYMENT in Britain is set to climb well into next year, despite the world economy being on the cusp of recovery, the head of the International Monetary Fund (IMF) has said.

The economy remained "highly vulnerable" to shocks, Dominic Strauss-Kahn told the CBI conference. He spoke as further job losses across Britain were announced and an international study warned the UK lagged behind its rivals in shaking off the recession.

Lloyds Banking Group said it would shed 800 staff in Buckinghamshire after insurer Equitable Life ended its administrative services contract with the group, choosing instead to use an Indian logistics firm, HCL.

Despite the high price of oil, the annual oil and gas industry survey from Aberdeen and Grampian Chamber of Commerce warned that, over the next three years, the majority of operators – 80 per cent – expect to reduce their workforces.

Meanwhile, a report from the Organisation for Economic Co-operation and Development (OECD) showed the UK doing worse than its major economic rivals from July to September.

Mr Strauss-Kahn said the sustainability of the recovery depended on decisions by policy-makers in the months ahead. While most economies would return to growth, it would take time for the jobs market to recover. "It is difficult to claim that the crisis is over when unemployment is at historic highs and getting higher still," he said.

The IMF chief said there were some positive developments in the UK, with an improvement in the overall outlook and indications that job cuts were coming to an end. "Still, the recovery may be somewhat subdued, held back by balance sheet adjustment by banks and households," he added.

The economic "storm" had passed and the worst had been averted, but Mr Strauss-Kahn added: "The economy remains very much in holding pattern – stable and getting better, but still highly vulnerable."

The main party leaders were at the CBI conference yesterday, setting out their pitch for how to handle the economic crisis. In an event more politically charged than usual, they put forward their economic ideas ahead of the general election, which has to be held before June.

Prime Minister Gordon Brown received an early boost, winning praise for his handling of the recession from Mr Strauss-Kahn. The IMF chief said he owed a debt of gratitude to Mr Brown, adding it was too early to remove emergency fiscal support.

However, he also said the top priority for wealthy countries such as the UK should be to salvage their economies from the crisis-fighting efforts deployed over the past year.

The PM defended his high-spending approach to the economy, saying: "Choking off recovery by turning off the life support prematurely would be fatal to world growth. So that's why we will, like other countries, continue with our plans to support our economy until the private-sector recovery is established."

But Tory leader David Cameron said growth could be stimulated by bringing down debt. He has been calling for the government to get a grip on its ballooning deficit, and he said slashing debt was not incompatible with spurring growth.

"Dealing with this deficit is not an alternative to economic growth – the two go hand-in-hand," Mr Cameron told the conference. "If investors see that there is no will at the top of government to get a grip on our public finances, they are going to seriously doubt our country's creditworthiness."

Mr Cameron's new emphasis on growth was a recognition that his austerity message has not resonated with voters. An Ipsos Mori poll at the weekend showed the gap between the Conservatives and Labour had narrowed to only six points, which would leave the Tories short of an overall majority if repeated at a general election.

Liberal Democrat leader Nick Clegg said the two main parties were presenting voters with a "false choice" at the election. He called for a new tax on the profits of banks until large financial institutions had been split up.

CBI director-general Richard Lambert, who hosted the leaders at the conference, said all three had spoken with a different emphasis on how they would reduce the public-sector deficit.

"Mr Brown warned that attempts to re-balance the budget too soon could threaten growth," Mr Lambert said. "Mr Clegg said a government could take its time, but stressed the need for clarity about the measures needed.

"Mr Cameron emphasised the risk of tackling the public deficit too late. All three were lively speeches that engaged the minds of the hundreds of business leaders in the room, and prompted many questions."

In a separate session at the conference, Royal Bank of Scotland chief executive Stephen Hester suggested the banking crisis had been driven in part by consumer demand. He said banks mirrored society and claimed the wider world had been "complicit" in the borrowing binge that had led to the crisis: "Part of the expansion of the last decade or more was not real."