By most evaluations, the recovery in the UK in 2013 was stronger than had been predicted at the start of the year. The recovery phase of the economic cycle which included the Global Financial Crisis has been unusual in that the recovery phase has been drawn out and muted, with global unemployment still well above long term averages. Employment is a lagging indicator of the economic cycle, so to that extent, it is unsurprising that the 2013 “recovery” in the UK should be followed by a wave of job creation.
According to the latest figures from the Office for National Statistics, unemployment in the UK fell to 2.32 million, 7.1% of the workforce in the three months to November 2013. Over this period, 167000 people found work. The decline in the level of unemployment is the largest drop seen in 17 years and more people are now working in the UK than at any time since 2009. The UK workforce now stands at 30.2 million people.
The Bank of England base interest rate has been at a record low level of 0.5% since March 2009. The Bank’s forward guidance suggests that rates would not increase until unemployment had fallen below the 7% mark, a situation it did not expect to see until 2016 at the earliest, so the resurgence in UK employment has taken the bank by surprise. Inflation has fallen to its target level of 2%, so there is no imminent reason for rates to increase, however, there is unease that “cheap money” could be fuelling a housing bubble. On the other hand, real incomes in the UK have fallen since the crisis and should interest rates return to typical levels, many families would find it difficult to keep up with repayments. Not that its being widely said yet, but salaries need to catch up with the cost of living to afford many working people the ability to withstand higher interest rates.