Employment market update

While the UK economy enjoyed encouraging growth during the second quarter, this largely reflected events before the new government announced its swingeing public spending cuts.  Which means, although the longer-term trends remain broadly positive, that may be as about good as it gets for this year.

A strong second quarter
According to the Office for National Statistics, industrial output rose by 2.6% in the three months to May - the fastest rate of increase for more than 20 years.  The National Institute of Economic and Social Research estimates that the economy grew by 0.7% in the three months to June, and revised its estimate of GDP growth for the three months to May upwards from 0.6 to 0.9%.

Growth likely to moderate
But this activity may well represent a temporary peak in the recovery cycle, with NIESR, the BCC and other economists all forecasting slower growth ahead.  The International Monetary Fund has also cut its growth forecasts for the UK economy for both this year and next; its latest World Economic Outlook report predicts that Britain's economy will grow by 1.2% in 2010 and 2.1% in 2011 (lower than the April estimates of 1.3% and 2.5% respectively), mainly due to the recent additional fiscal tightening and the weaker prospects facing Britain's major export market, the Eurozone.  (The UK thus becomes, with France, one of only two leading economies to have its growth forecast revised downwards instead of upwards.)

Cuts hit business confidence
The scale of Britain's public spending cuts together with a renewed slowing of the global economy have inevitably impacted on levels of business confidence in the UK which, according to a recent quarterly survey from Deloitte, have fallen to a 12-month low.  The survey shows that finance directors from leading UK companies now believe there's a 38% chance of the UK falling back into recession, up from 33% three months ago.  (The net percentage of ‘optimists' also dropped, from 40% to 24%.)  That said, economic growth over the next two years is likely to be driven by "employment-creating, dynamic and ambitious" medium-sized firms rather than large corporations, according to a new survey from Ernst & Young.

Private-sector recruitment up
There have been further recent positive signs in the recruitment markets, particularly in sectors such as banking and financial services.  The latter has been growing at its fast rate since 2007, according to a new survey from the CBI and PwC.  Among major recruitment firms, Randstad has witnessed "strong growth" in the financial sector over the past year, while Robert Walters reports recruitment activity accelerating "markedly" in the second quarter.  Hays has also had an "encouraging" quarter, seeing year-on-growth for the first time since 2008.  The latest Reed Job Index reveals that UK employer demand for new workers remains strong, encouraging reed.co.uk MD Martin Warnes to suggest that there are enough signs of emerging optimism to support the government's hopes that the private sector will begin to accelerate job creation.

Regional imbalances
But these signs of recovery, such as they are, are largely confined - both geographically and sectorally - to the South East, leading the Work Foundation to warn of the dangers of a ‘split recovery'.  The Foundation's latest analysis suggests that any recovery could bypass some UK cities altogether.  While cities with highly educated populations and high levels of employment in knowledge-intensive industries (think London, Reading, Oxford etc) are likely to lead the recovery, other more dispersed locations with low-skilled populations and a strong reliance on public-sector employment (think Barnsley, Hull, Grimsby etc) are likely to "remain scarred by the recession for many years to come" unless urgent targeted action is taken.  (Recent proposals by work & pensions secretary Iain Duncan Smith that the long-term unemployed should move around the country to find work, recalling Norman Tebbit's ‘Get on your bike' exhortation of the early 1980s, have been widely dismissed as "impractical".)

Jobs: public-sector cuts, private-sector growth?
The government's predictions for public-sector job cuts and private-sector jobs growth have also been widely criticised as inaccurate on both counts.  Figures from the new Office for Budget Responsibility suggest that some 600,000 public-sector jobs would be axed over the next five years, with the first ten per cent of these set to disappear this year.  (The cull is already under way).  But the OBR apparently adopted a narrower definition of the state workforce than that normally used by official statisticians; according to the more usual ONS measures, for example, a further 50,000 jobs would be set to go.  Figures as diverse as former MPC member David Blanchflower and the TUC's Brendan Barber have also criticised the government's prediction that 2m new private-sector jobs will be created over the next five years as hopelessly exaggerated.

‘Heroic' job creation estimates challenged
Commenting on the OBR figures, Blanchflower noted "There is little or no evidence that the private sector is hiring or has any plans to hire," while Barber observed "It's not so much wishful thinking as a complete refusal to engage with reality."  It's also worth noting that, following the less severe 1990s recession, it actually took nine years to create 2m jobs.  Adding to the discomfiture is the revelation, courtesy of the Guardian, that leaked Treasury figures talk in terms of up to 120,000 public-sector jobs and 140,000 private-sector jobs disappearing annually for each of the next five years, totalling some 1.3m in job losses.  Even more recently, the Organisation for Economic Co-operation and Development described the economic recovery as "too muted to result in strong job creation.  As a result, the UK unemployment rate is expected to remain at nearly 8% at the end of 2011."

CIPD warns of ‘serious jobs deficit'
The CIPD, which recently described a rise in unemployment towards 3m in the next two years as "a distinct possibility", now reckons that the UK economy would need to grow by at least 2.5% (i.e. ahead of most current predictions) for each of the next five years for the private sector to create enough jobs to more than offset the employment impact of the squeeze on public spending.  Any slightly milder growth outcome would leave unemployment still close to 2.5m by 2015, meaning that Britain would face "at least half a decade of serious prolonged jobs deficit."  "Will fiscal pain spur private-sector jobs gain, as the coalition's economic strategy assumes?" muses CIPD chief economic adviser John Philpot.  "Yes, but probably not very much and certainly not any time soon."

●  Despite high levels of unemployment, official statistics revealed that, in May, there were still more than 7,000 vacancies advertised in Jobcentres that had remained unfilled for more than six months.  Teignbridge (Devon) had more unfilled job vacancies advertised for 9-12 months (many of them hard-to-fill care worker positions) than any other local authority, while Sheffield - where the unemployment rate is above the national average - has seen more than 300 jobs (largely in sales) remain unfilled for the last 6-9 months).  To critics of the current welfare system, these figures merely confirm that the system isn't working as intended.  The UK still has 5m people out of work who live on benefits.