15/07/2011
CIPD revises economic and employment forecast: recovery weaker than expected but ongoing severe pay squeeze reduces impact on unemployment
Revised forecasts for
UK economic and employment growth published today by the Chartered Institute of
Personnel and Development (CIPD) revise downward the CIPD's previous (December
2010) forecast for both GDP and unemployment.
The CIPD now expects the economy to grow by 1.4% in 2011 (down from 1.6% in the
previous forecast) and 2.0% in 2012 (down from 2.1%). Unemployment is now
expected to peak at 8.7% (2.7 million) in mid-2012 rather than 9.5% as
previously forecast.
The downward revision to the CIPD's unemployment forecast is due in part to
lower than expected unemployment in the first quarter of 2011 - which reduces
the baseline for the mid year forecast - and in part also to the expectation
that a combination of weak growth in labour productivity and modest pay rises
will continue to moderate the impact of anaemic output growth on employment.
However, the outlook for jobs would deteriorate if economic growth is even
weaker than expected and/or the rate of pay rises accelerates which would put
greater pressure on employers to cut staffing costs. Recent news of job losses
in parts of retail is therefore especially worrying since it highlights the
extent to which many businesses in relatively high employment sectors,
dependent on domestic consumer spending, are entering much tougher times.
The revised CIPD forecasts for economic growth, employment and unemployment -
outlined in the Institute's latest Work Audit, The 'jobs without growth'
conundrum - remain more pessimistic than the current (March 2011) forecasts
from the Office for Budget Responsibility (OBR). And while the CIPD now
forecasts a lower peak in unemployment, the revised forecast nonetheless
indicates that unemployment will be around 2.4 million in 2015, roughly where
it stands today and still 800,000 higher than the pre-recession level.
Moreover, as Dr John Philpott, the CIPD's Chief Economic Adviser, comments,
while the outlook for unemployment may be less bleak than initially feared the
total amount of pain being inflicted on the labour market by anaemic economic
growth is as severe as expected:
"Just as pay freezes and pay cuts protected jobs in the recession, the
ongoing pay squeeze is helping our anaemic economy support employment. This is
clearly preferable to a further very sharp rise in unemployment. But a
combination of falling real wages and the likelihood of unemployment well above
the pre-recession level for several years to come represents an equivalent
amount of labour market distress.
"While the specific labour market symptoms of economic austerity are
different than initially expected the ongoing pain is no less severe as the UK
workforce continues to suffer an implicit trade-off between jobs and real
living standards. In this respect one must hope that the Coalition Government
will not stick rigidly to its existing 'Plan A' for fiscal deficit reduction if
much weaker economic growth makes the trade-off ever harder to bear."