Britain's 'lost generation' as three million unemployed by next year

Published on Thursday 19 November 2009 21:55

UNEMPLOYMENT is expected to hit three million in just over a year, according to stark figures which showed the UK was in line for a slow and painful recovery.

Britain's jobless rate could reach 9.5 per cent by 2011, rising further than the current 7.8 per cent, the Organisation for Economic Co-operation and Development (OECD) predicted.

Despite a more optimistic outlook by consumers and businesses, the figures show that Britain's dole queue will lengthen long after many believed the country would shake off the worst of the recession.

The OECD yesterday warned that further "substantive" measures may be needed to prevent lingering damage to the labour market caused by the rise in youth and long-term unemployment.

And long-term "structural" unemployment would take until 2017 to come down to "pre-crisis levels" in countries worst hit by the recession, including the UK, the OECD warned.

Theresa May, the shadow work and pensions secretary, said: "These figure expose just how badly Gordon Brown has mismanaged the economic crisis.

"We risk a lost generation unless Labour wakes up and stops sleepwalking through the recession.

"It is now even more urgent that we put in place a proper plan to get Britain working, like the one we set out at our party conference, including much more help for the 943,000 unemployed young people deserted by Labour."

Britain's flexible labour laws, which made it easier for staff to be made redundant, had also made the UK a target ahead of other EU countries for employers looking to shed workers.

Unemployment was 2.46 million between July and September, while the jobless rate among 16 to 24-year-olds was 19.8 per cent, a record high.

The report said: "With rising youth and long-term unemployment, further substantive activation measures may be warranted to contain a negative long-term impact on the labour market."

The jobless rate across the 30 OECD nations was 8.6 per cent in August, up from 8.5 per cent in July and from 6.3 per cent in August 2008. In Europe, average unemployment rates rose to 9.8 per cent while America's climbed to 9.6 per cent. In Japan, the rate was 5.5 per cent.

Despite the high unemployment forecast, UK retail sales rose in October. Lending conditions remained tight, however, suggesting recovery from recession will be slow.

A 3 per cent rise in retail sales was the best figure since August of last year and due largely to a 3.9 per cent boost to food sales, the Office for National Statistics said.

Non-food stores also saw an increase, of 0.9 per cent, with textiles, clothing and shoe stores booking a 4.2 percent gain and household goods up 2 per cent. However, separate figures showed the flow of credit in the British economy had not yet recovered from the credit crunch and threatened any rebound in growth. The Bank of England said lending to British businesses shrank by 4.6 per cent in September, driving the 12-month growth rate to a record low of minus 6 per cent.

Major banks expect subdued demand for new lending through the fourth quarter, the Bank said.

Howard Archer, chief European economist at IHS Global Insight, said that the tight credit conditions, together with high unemployment, low earnings growth, rising debt, and worries about the economy, will weigh against future growth in spending.

Meanwhile, figures from the Council of Mortgage Lenders were more encouraging. They showed gross mortgage lending rose to 13.5 billion in October, up 5 per cent from September but still 27 per cent below a year ago.

Lending for house purchases has risen but re-mortgaging activity is at the lowest level in a decade, the council said.