Bank: Workers face uncertain future within a weakened UK

Published on Monday 15 March 2010 22:10

A BANK of England report has warned of "considerable uncertainty" in the labour market despite recent improvements in unemployment figures.

The report has indicated that the recovery is weaker than ministers had hoped. It is the latest blow to claims by the government that it is leading Britain out of the downturn.

The report also follows disappointment last week for Prime Minister Gordon Brown when the UK's trade figures showed that the gap between imports and exports had grown to record levels despite a weak pound. Ministers had hoped the low value of sterling would allow exports to rise.

And yesterday's report by the Bank of England came just ahead of employment figures due to be published later this week.

If the forecasts are correct and unemployment starts to grow again, then Chancellor Alistair Darling will come under huge pressure from the unions to focus on job creation rather than the debt reduction the City and Conservatives are pressing for.

In yesterday's Scotsman, the Scottish Trades Union Congress called on Mr Darling to ignore the calls from business leaders over debt reduction and concentrate on jobs.

It suggested that those who were calling for the national debt of more than 1 trillion to be reduced were the people largely responsible for creating it through the greed of the banks and financial services.

The Bank of England's latest quarterly bulletin said there was a risk of rising dole queues if "the recovery in demand proves more sluggish than businesses have expected".

The warning comes despite improving official data from the labour market, showing a fall of 3,000 in the unemployment total between October and December to 2.46 million.

The Bank highlighted several risks facing the jobs market including a weak recovery, job cuts through public sector belt-tightening and more firms going under if lenders take a harsher stance on struggling companies.

Greater confidence over the outlook among staff could also make them less willing to accept a further squeeze on wages and force companies to shed labour, it added.

Although the economy contracted by a record 6.2 per cent during the recession, unemployment rose by far less than the slump of the early 1990s.

The Bank put this down to factors such as falling unionisation among workforces and greater flexibility among staff over accepting pay freezes or shorter hours to prevent a wider jobs cull. The labour pool also fell less than in the 1990s as uncertainty over pensions following the crisis encouraged older people to defer retirement.

Worries over the jobs market may have implications for the economy, the Bank added. "Further job losses may lead households to increase their precautionary saving to insure against loss of work. That will mean households have less money available to spend on goods and services," the Bank's report said.

It went on: "And if some people suffer an extended period of unemployment, they may be unable to retain or acquire the skills sought by employers, limiting the recovery in output."

The report helped contribute to as dip in the FTSE 100 yesterday as traders reacted to further uncertainty over the economy.

The FTSE fell by 31.8 points, or 0.5 per cent, to 5,593.85.

However, there was some good news for the Prime Minister when Moody's, an international credit rating agency, said it was confident about the UK keeping its triple A status.

Last week another agency suggested that the government was not doing enough to tackle Britain's debt.

Moody's said in its report, which also included the US, France and Germany, that the UK's credit rating was safe because of what it believed was a willingness on behalf of the government to tackle its debt.

"In light of the muted recovery, discretionary fiscal adjustment is now the principal means of repairing the damage that the global crisis has inflicted on government balance sheets," said Pierre Cailleteau, managing director of Moody's Sovereign Risk Group.

But others have made it clear they will wait and see what the Budget brings before passing judgment on Britain's status.

If the country was to lose its international triple A credit rating, the cost of government borrowing would soar because it would have to pay higher interest rates. This in turn would lead to massive cuts in services and tax hikes.

It would also directly hit the pockets of individuals, with the cost of private and business loans as well mortgages soaring.

A key part of the Conservatives' attack on Labour has been the claim that the triple A rating would be lost if Labour remained in power or ended up as the biggest party after the election.

The Conservatives have predicted a financial meltdown if that were to happen.

Yesterday Philip Hammond, the Conservatives' shadow chief secretary to the Treasury, kept up the pressure. "The ability of the government to maintain its triple A rating hinges on the credibility of its deficit reduction plans. Gordon Brown has failed that test," he said.

STIFLING RULES

BUSINESS leaders have warned that a "relentless flow" of employment law is stifling competitiveness and risking future job creation.

The British Chambers of Commerce said basic workplace protections had been supplemented with "burdensome" rights such as extended time-off provisions, and "unreasonable" health and safety restrictions.

Problems included an "unacceptable" 20-week delay in starting employment tribunal cases, and employers being responsible for the health and safety of staff who work from home, said the report. BCC director-general David Frost said: "There is an emerging consensus that employment law is now weighted too far in favour of the employee.

"Many rights come from European Union legislation, which is informed by and aimed at labour markets very different to our own. The result is that the UK and the EU are becoming increasingly uncompetitive due to the rising cost of labour."

One businessman quoted in the BCC report, said: "As the employer, I seem to have more responsibility for a pregnant woman than the father of the child."

A Department for Business spokesman said the government was committed to cutting regulation costs by 6.5 billion by 2015.