This post briefly summarises the main developments affecting the UK economy and labour market through 2012, drawing from a range of official data published over the last 12 months.
The
last year has been another difficult year for the UK. A combination of weak conditions in the
global economy, and in the eurozone in particular, and weak domestic expenditure
mean that growth in the UK has been flat during the last year.
The
global economy has weakened during the past year. In its recent Economic Outlook, the OECD
suggests that growth has fallen in the major emerging countries of Brazil, India
and China in 2012. Growth has increased
slightly in the United States while the EU has contracted. The OECD expects the EU to continue to act
as a drag on global growth in 2013[1]. Within the EU the slowdown in growth in the
peripheral economies has started to spread to the core, with sharp declines in
growth expected in the major eurozone economies of Germany and France this
year. The crisis in the eurozone has yet
to be fully resolved and this remains the key risk to the global economy. However there are concerns that failure to
agree a programme of fiscal consolidation in the USA (the so-called “fiscal
cliff”) could also have a major impact on the prospects for the global economy
in 2013.
Domestically,
the UK entered recession in the final quarter of 2011, and growth contracted
until the third quarter of 2012. Changes
in GDP on a quarter-by-quarter basis have been particularly hard to interpret
during the past year as a result of a number of one-off events such as the
Olympic Games and the Diamond Jubilee.
However it is the case that in the third quarter of 2012 GDP was
unchanged from a year earlier[2]. Over the course of the year growth in service
sector activity has been offset by declines in production and
construction. Despite some positives in
the labour market and a decline in inflation during the year, earnings growth
remain weak, dampening consumer expenditure.
There
has been much debate throughout the year over the ‘puzzle’ of the relative
stability of the UK labour market in light of the weak economic conditions
described above. The last monthly Labour
Market Statistics of the year[3]
indicated a slight increase in employment alongside a more significant fall in
unemployment. Employment has now been
rising and unemployment falling consistently since the autumn of 2011. This appears particularly puzzling when
compared to previous recessions. During
the recent recession, output fell much more steeply than in the recessions of
the early and late 1970s and the early 1990s whilst employment fell by much
less. Between the first quarter of 2008
and the second quarter of 2009, real GDP fell by 6.3% whilst employment fell by
just 2%.[4]
Below
inflation wage growth provides one explanation, with UK employees accepting real-terms
wage reductions for much of the period since 2008 in order to limit job losses. However, there are a number of other trends
which could indicate continued and deep weaknesses in the labour market. These include increases in part-time
employment than have significantly outstripped recovery in full-time jobs,
which could indicate an increasing level of ‘underemployment’. This is supported by record levels of Labour
Force Survey respondents stating that they are working part-time purely because
they have been unable to find full-time employment. Continuing falls in labour productivity
alongside rising unit labour costs have been equally concerning, pointing to
employers ‘hoarding’ more labour than required to meet the current low levels
of demand for goods and services. This could
indicate a risk that, if demand does not start to increase significantly,
employment could begin to fall in early 2013 as it ceases to be sustainable for
firms to ‘hoard’ this excess capacity.
[1] OECD, November
2012. ‘Economic Outlook No 92.’ Paris:
OECD.
[2] ONS CROWN
COPYRIGHT, ‘November 2012. Second Estimate of GDP, Q3 2012.’ London: TSO.
[3] ONS CROWN
COPYRIGHT, 2012. ‘Labour Market Statistics, December 2012’. London: TSO.
[4] ONS CROWN
COPYRIGHT, 2012. ‘The Productivity Conundrum, Explanations and Preliminary
Analysis’. London: TSO.
No comments:
Post a Comment