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Tuesday, 6 May 2008

Jobs and the economy in 2008 - an update

It may seem like the slowdown in the world economy is not having an impact upon the jobs market in the UK. This is probably true for now, but this doesn't mean it won't.

The first people who are likely to lose their jobs in the current slowdown are those working for the big banks. Another big bank, UBS, announced 5,500 worldwide job cuts this morning. These jobs cuts will be made over the next year through a process of redundancies, fewer job created and natural wastage. All in all it is estimated that banking jobs and those jobs supporting the banking sector will fall by between 20,000 and 40,000 in central London alone.

Wider job losses are likely to follow soon after. The next groups to suffer will be those working in the housing market. With fewer housing transactions there will be less work for estate agents and house builders.

Next as the housing market slows and as the price of day to day living increases, people are likely to be spending less at the shops. Retailers have already started to see sales falling in March and probably in April. Some retailers will go bust and jobs will be lost.

Jobs will gradually be lost from the wider economy. As activity slows there will be less business to do and less need for additional staff. Tighter margins will mean that cost saving measures will be necessary for many businesses, including cutting headcounts.

One upside is that manufacturing may fair slightly better than it has done in the recent past. The weak pound should help to make British manufacturing more competitive, helping to support manufactured exports. However, with the world economy slowing and Britains export partners suffering this is not guarenteed.

Although the labour market has remained resilient in the first few months of 2008, expect to see unemployment start to rise in the next few months. We are not going to see unemployment levels at a level comparative to the early 90s, but it is going to be quite unpleasant for many.

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Friday, 18 January 2008

Belt tightening at Christmas

The Office of National Statistics today produced the December retail sales providing further evidence that the United Kingdom is entering a significant slowdown. These figures add further evidence to suggest that 2008 will be a tough year across the whole economy, not just financial services.

The figures showed that despite it being Christmas and prices being slashed, people have been either unwilling or unable to spend their money either at the shops or online. As a result sales volumes in the three months to December rose by only 0.4 per cent compared to the previous three months and between November and December sales volumes actually fell by 0.4 per cent – mainly in the non-food sector.

Even though many will not have felt the pinch of higher interest rates, lower house prices or higher unemployment, most believe it is coming. Therefore consumers are tightening their belts in anticipation of a rough year. Many people will be looking at their savings (or more likely debt) and wondering how they will be able to pay their mortgage when it is set at a higher rate, or how they would survive if they lost their jobs.

Economic slowdowns are created as a result of both fundamental problems with the economy and people reacting to them. Without this reaction economic activity can receive a significant boost making a downturn less severe. However, without these reactions the economy is merely making the problem worse in the long run. Economic fundamentals become ever more stretched – such as savings, debt and household budgets – and eventually a significant correction is required. This correction could come as a short, sharp shock or it could be a sustained period of below average growth. Either way, this will be painful process for many.

In many ways the UK economy has been putting off a slowdown for too long. Economic fundamentals are looking unbalanced and in need of correction. The extent and timing of the correction is still not clear, however, it seems certain that it will begin in 2008 and will be unpleasant for many.

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