The UK unemployment statistics for May were published this week (see report). The bad news that they contain is that unemployment has risen to the highest level for over a decade (since November 1996). However, we are of the view that they statistics contain more good news than bad news.
Unemployment rose by 39,000 in May, the lowest monthly increase this year. This is really good news on a number of levels. First, it suggests that the recessionary pressures are easing. After a peak increase in February, the rate of increase has abated throughout the Spring. Second, it implies that the economy may have turned the corner. This is the fourth month in a row where the rate of increase has fallen. If this suggests a trend, then the UK could be over the worst of the recession. Thirdly, it now starts to suggest that the dommsters who predicted unemployment at 3 million by the end of the year are now more likely to be wrong. Fourthly, if so, then the long term impact on the PSBR is unlikely to be quite as bad as has been suggested. All in all, we ought to be pleased by these figures.
The possibility of a double-dip recession is something of a concern. we have been thinking about what could cause such an event, and the most likely suspect that presents itself is a Swine Flu Pandemic. The WHO have now classed the current outbreak as a pandemic. The flu is currently dormant in the UK (the summer is its dormant period), but is active in Australia (the flu season is during the winter). A report in The Times examined the impact of a serious outbreak on the UK schools system (see report) which, if worked up to have an impact on the economy as a whole, could have a significant impact upon UK GDP.
The current recovery, such as it is, would be significantly affected by a serious disruption to the economy. This is an area of concern that we need to be aware of in the coming months.