News

July 15, 2011

Recovery fragile despite falling unemployment, warn business groups

The economic recovery remains fragile despite new figures revealing that unemployment fell by 26,000 in the three months to May this year, business groups have said.

Research from the Office of National Statistics (ONS) found that the rate of unemployment now stands at 7.7 per cent or 2.45 million people, down from 7.8 per cent in the previous quarter. The ONS also revealed that private sector jobs had increased by around half a million on last year.

The British Chamber of Commerce (BCC) has predicted that firms in both the manufacturing and service sectors are expecting to expand their workforce in the next three months, largely due to boosted confidence in profitability and turnover.

However, the BCC said the UK’s recovery is still fragile, particularly when the Government is continuing to reduce the deficit. “Our economy is out of balance,” said BCC chief economist David Kern. “The public sector is too large and the wealth-creating private sector is too small. We do not export enough goods and services, meaning we run up continual trade deficits.”

Kern said that small firms would have to cope with “acute pressures” in the short term, such as restricted cashflow and high prices for raw materials. “The Government needs to implement more growth-enhancing policies to help the private sector flourish,” he added.

The Chartered Institute of Personnel and Development (CIPD) also predicted a fragile outlook, with “anaemic” economic growth ahead, according to CIPD chief economic adviser Dr John Philpott.

Businesses had used pay cuts and pay freezes to protect jobs during the recession, he said, but with wages falling and still-high unemployment levels dampening consumer demand, firms dependent on consumer spending, such as retail, were now entering “much tougher times”.

Employment Minister Chris Grayling called the ONS figures “encouraging”, but said the Government did not underestimate the scale of the challenge ahead to help boost employment.

“It’s really important that we continue to support the economy and encourage businesses to invest and create jobs,” he said.

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