Tuesday, 27 January 2009

On To 3 Million?

One economic indicator that we are following closely this year is the UK unemployment figure. This is important for a number of reasons. First, it gives an idea of the pressure on government spending to rise. It lets us gauge how hard the recession is biting. Second, it provides an early warning of the direction in which tax revenues are heading. The unemployed tend to have less to spend, so VAT receipts, followed after a while by Corporation Tax receipts and Schedule D Income Tax receipts, fall away as unemployment rises. Together these give us an indication of where the PSBR is going - and how readily the Government will be able to repay its borrowing.

The figures published last week (see article) indicated that unemployment had risen by 77,900 in December. This is a real tragedy to each of the individuals who make up this statistic, and we would not want to downplay any of the suffering that they are now going through. However, in a previous post (see post) we suggested that, in order for unemployment to reach 3 million by the end of 2009, the figures would have to increase by 100,000 a month.

The good news is that we are on course for unemployment of about 2.5 million by the end of 2009. The bad news is that the rate of increase is accelerating. Prior to December, unemployment was rising at about 45,000 a month. It is now on its way to doubling that rate of increase, which is worrying.

The implication is that the stock of debt incurred through the rising PSBR is increasing as well. Perhaps it may be beyond 2017 before it is paid off?

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