Jobless ‘set to hit 2.7m by 2013’

UNEMPLOYMENT will soar to 2.7 million by early 2013 as the UK economy stalls and the private sector sheds temporary workers hired during the recovery, according to a prominent group of economists.

The latest quarterly forecast from the Ernst & Young Item Club, due out tomorrow, will warn that a further 130,000 Britons will join the unemployment scrapheap by the spring of 2013, despite the Bank of England’s attempt to stimulate growth by printing more money.

Unemployment hit a 17-year high last week at 2.57 million, and cuts will erase more than 300,000 public sector jobs in the coming years.

It had been thought that growth in the private sector would more than compensate for the losses, but a series of downgrades to the UK’s economic growth forecasts have put paid to those hopes.

According to the Item Club, the financial turmoil in the Eurozone has snubbed out growth even in the erstwhile bright spots of the British economy – business investment and exports.

The report predicts that business investment will be flat this year and exports will increase by just 6 per cent, much less than expected three months ago.

The group will call for more targeted support for the labour market, saying that the Bank of England’s injection of an additional £75 billion into the economy via quantitative easing is unlikely to put the recovery back on track. It believes the UK government needs to find some “wriggle room” in its budget to finance measures aimed at stimulating private sector employment.

The Item Club has already warned that the UK economy is at a “critical juncture” this year, and is set to downgrade its forecasts for GDP growth.

Tomorrow’s report will offer some good news for consumers, however. It forecasts households will benefit from lower commodity prices and inflation, coupled with rising disposable incomes next year.

But the better outlook for 2012 is not expected to dampen monthly inflation figures due out on Tuesday.

Energy price hikes mean September is likely to have been a “nasty month” for inflation, and economists expect the consumer prices index (CPI) to hit a three-year high around the 5 per cent mark.

Philip Shaw, at broker Investec, expects CPI to hit 5.1 per cent as the utility hikes alone add 0.4 per cent to inflation. He said: “September should be a nasty month for inflation, with the CPI rate set to rise sharply from August’s already elevated 4.5 per cent.”