Unemployment: will this time be different?
The Bank of England expects that the recession will cause unemployment to almost double from the historically low rate of 3.7% where it is now, to almost 6.5% by the end of 2025. The UK-wide insolvency specialists Begbies Traynor have said they expect the number of company insolvencies to be even higher than in the last financial crisis in 2009. At that time, unemployment rose to a peak of 8.5%. So why would this time be different?
One potential reason is a legacy of the pandemic, when more than half a million people left the labour force completely (neither in employment nor job-seeking). A recent House of Lords Economic Affairs Committee report said early retirement by people in their 50s and 60s was the main driver. However, there are early signs that this “economic inactivity", representing 21.4% of the workforce, is beginning to reverse – ONS surveys indicate that economically inactive over 50s are now returning to work because of the increasing cost of living.
The government has recently started signalling measures to accelerate this return by for example, easing tax restrictions on pension saving and cracking down on doctors issuing sick notes for the long-term sick. Expect more of this type of announcement: the alternative to cajoling people back to work is additional tightness in the job market, which will keep interest rates higher for longer, prolonging the recession. Something the government certainly doesn't want.