U.K. Economy Faces `Worse' Year for Jobs on Government Cuts, CIPD Says

U.K. unemployment will rise in 2011 in what will be a “worse” year for hiring as the government cuts public jobs as part of plans to reduce the budget deficit, the Chartered Institute of Personnel and Development said.
Payrolls will drop by 200,000 next year, with public-sector employment falling by 120,000 and private-sector jobs by 80,000, the London-based group said in a report today. Unemployment may rise to 9 percent, it said. Consumers’ spending power will also be eroded, with the CIPD forecasting below-inflation pay increases of 2 percent in 2011.

Prime Minister David Cameron’s plans to lower the budget gap will cost the economy about 330,000 government jobs by 2015, according to the Office for Budget Responsibility. Still, the watchdog has said the loss will be more than offset by the creation of about 1.5 million private-sector jobs.

“It will be a ‘fingers crossed’ year for the economy,” CIPD Chief Economic Adviser John Philpott said in the report. “This doesn’t mean that we are facing a return to the dire recession days of late 2008 and 2009, but nonetheless 2011 will probably feel like another year in the economic doldrums, rather than the start of a return to prosperity.”

While jobless claims fell for a second month in November, according to a Dec. 15 report, the decline was less economists forecast in a Bloomberg News survey. In the quarter through October, unemployment measured by International Labour Organization methods rose by 35,000 to 2.5 million people and the jobless rate increased to 7.9 percent.

Also in November, inflation unexpectedly accelerated to 3.3 percent, the fastest in six months. The Bank of England forecasts that annual consumer-price growth will remain above its 2 percent target through 2011.
“Most workers will feel a squeeze in their real living standards, with pay rises still relatively modest against a backdrop of higher prices,” Philpott said. It will be a “jobs light-pay tight” year.”

To contact the reporter on this story: Fergal O’Brien in London at fobrien@bloomberg.net
To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net