Tough new restrictions to halt the spread of coronavirus may push unemployment to levels not seen since current records began almost 50 years ago, experts have warned.
Economists suggest that, by the end of the year, the jobless total could rise above the 3.28 million total that hit Britain in 1984 – the era of the miners’ strike and inner-city riots.
Before new social distancing curbs were announced last week the consensus among scores of analysts was that 8.5 per cent of the working age population would be jobless by the end of 2020 – nearly 3million people.
Prediction: Economists suggest that, by the end of the year, the jobless total could rise above the 3.28 million total that hit Britain in 1984
Now a string of analysts has told The Mail on Sunday those forecasts could be torn up. ‘That figure is way too low,’ said Professor Trevor Williams, of Derby University, former chief economist with Lloyds Bank Commercial Banking. ‘I would be looking at 13 per cent,’ he added.
His prediction – by far the highest of the economists spoken to by The Mail on Sunday, with many analysts still yet to re-calibrate their forecasts after last week’s announcement – would push unemployment to around 4.4million.
Another researcher, Economic Perspectives, estimates the jobless total could reach 11 per cent, or 3.75 million people.
The Prime Minister last week announced social gatherings will be limited to six people from tomorrow, sparking fears Christmas celebrations may be hit.
Neil Shearing, chief economist at Capital Economics, said: ‘My concern would be that the evolution of restrictions, and the fact they are tightening not loosening, may negatively affect consumer confidence.’
George Buckley, chief UK economist at Nomura, said: ‘I think you can say, when there are more restrictions on economic activity, then for sure the unemployment forecast may have to be lifted.’
For many, the spectre of a jobs bloodbath will conjure up memories of the days when rampant unemployment prompted band UB40 to pen their 1981 hit One In Ten, referring to the jobless rate in their native West Midlands.
The Bank of England early last month predicted unemployment could reach 7.5 per cent by the year end. But Howard Archer, chief economic adviser at EY’s ITEM Club, said: ‘The outlook for the fourth quarter is much dodgier than a few weeks ago.’
The independent ITEM Club – which is sponsored by financial consultants EY and which uses the Treasury’s computer model of the economy – is already cutting its forecasts for economic activity in the fourth quarter of this year, partly as a result of the new Covid-19 restrictions.
Archer said: ‘Downside risks to the economy have picked up recently, not least with the danger of more restrictions on top of those just announced.
‘The last three months of this year potentially face a triple whammy of the latest restrictions, plus any others that may be imposed; the risk of a sharp rise in unemployment; and the fraught nature of the UK talks on trade with the European Union.’ He added that unemployment ‘certainly could be’ higher than the current consensus level, especially if yet more restrictions are imposed.
Rising unemployment forecasts are likely to place pressure on the Government to extend help schemes, such as furlough, as well as resisting the return of blanket lockdown measures.
The previous jobless peak of 3.28million was for the three months from March to May in 1984, the highest since records began in 1971. It fell to 2million in May-July 1990 but a second recession sent it back up to 3million in the period December 1992 to February 1993. Before Covid-19 struck, the jobless figure was 1.28million in August to October 2019.
Tuesday sees the latest unemployment figures and ITEM is expecting them to show a rise to 4.2 per cent, from the current level of 3.9 per cent, even before the furlough scheme ends.
The Bank’s Monetary Policy Committee meets this week but is expected to take no action on either interest rates, currently 0.1 per cent, or quantitative easing (QE) money creation.
Since the epidemic began, the stock of QE has been increased from £435billion to £745billion.
On Wednesday, the Consumer Prices Index is forecast to show a sharp fall in inflation during August due to the temporary VAT cut for the hospitality industry from 20 to five per cent.
In the year to July, the CPI was running at one per cent. The figure for the 12 months to August is expected to fall to 0.4 per cent.
August retail sales figures on Friday are predicted to show the effect of pent-up demand over the summer starting to weaken.
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