Employment is a lagging indicator of the economic cycle and tends to pick-up only once employers are convinced that demand for their goods and services has increased. It is therefore good news that unemployment in the UK has fallen back to a level not seen since 2009 of 7.4% which was seen in the February to April trimester of the year. According to the Office for National Statistics, 99000 people stopped claiming unemployment benefit in the three months to October meaning that 2.39 million people are now registered as unemployed in the UK.
The performance of the UK economy has been regarded as the strongest within the European Union and certainly, UK unemployment is well below the EU average of 10.9% and the Eurozone level of 12.1%.
The British Prime Minister welcomed the news, but cautioned: “There should not be one ounce of complacency because we have still got work to do to get our country back to work and everyone back in work means greater stability for them, greater ability to plan for their future, greater help for their families. But the plan is working, let's stick at it, and get unemployment down even further."
The leader of the Opposition, Ed Milliband whilst generally welcoming the news, claimed that the figures were being improved by a number of people accepting part-time employment since they were unable to find full-time jobs; well it is the traditional season for Scrooge, of course.
What the politicians seem to be overlooking is that UK unemployment is roughly 50% higher now than it was before the Global Financial Crisis struck. Before the crisis, UK unemployment was 5%, roughly 1.6 million, so Mr Cameron is right in suggesting that now is hardly the time for the UK to rest on its laurels.
The Bank of England’s forward guidance suggests that there will be no change in interest rate policy until unemployment falls below the 7% mark and that an increase would not necessarily follow unemployment dropping to that level automatically.