UK unemployment rate drops – boom?

by Michael Roberts

Like that of the US, the UK’s unemployment rate took a plunge down to 7.1%.  Added to the news that the IMF has upgraded its forecast for UK growth to 2.4% for this year, all the talk is of sustained growth for the UK economy over the next few years. But a quick glance at the unemployment data does suggest caution in that optimism.  Sure, the official unemployment rate is plunging, but it is still well above pre-crisis levels (some 2% pts.)

And as I have discussed before in previous posts (http://thenextrecession.wordpress.com/2013/09/13/uk-underemployment-and-economic-recovery/), much of this reduction has been at the expense of a fall in wages.  Employers have kept staff by holding down wage increases and switching staff onto temporary contracts (zero hours) and part-time work.  Average weekly earnings are still way below inflation.

Most interesting, as in the US, many people who want to work have given up looking and either gone back to college, working in the ‘black economy’ or just stayed at home (see my post, http://thenextrecession.wordpress.com/2013/12/05/the-uks-great-autumn-recovery/).  The UK labour participation rate (% working of those working age) has fallen sharply since the beginning of the crisis in 2008 and so about 2% pts of the drop in the official unemployment rate can be explained by people just leaving the workforce.

Until the capitalist sector begins to invest in new equipment and plant in earnest, we cannot really say that the UK economy is achieving ‘lift-off’.  Up to now, the pick-up in growth has been driven by rising house prices (property boom), ultra-low interest rates and cheap credit and by a relative easing off on austerity by the government.  All these three factors are likely to alter for the worse this year and next.  That’s the test for the UK capitalist sector, still facing relatively low levels of profitability.  The large firms continue to hoard cash and the small firms cannot borrow to invest.