Jobs, deficits and inflation
Jobs, deficits & inflation
We’re told that we’re entering a new age of austerity. Perhaps we are. At least it could be said to serve a governments purpose to warn us about the dire nature of the future before it hits us square in the chops. There seems little doubt that many people working in the public sector will lose their jobs. The Office of Budget Responsibility (OBR) has forecast that as many as 610,000 public sector jobs could go by 20161. Clearly the government is hoping that the private sector will be able to pick up its share of employment as the economy recovers.
There are reasons to doubt that the private sector will be able to take up the slack. Between 1997 and 2010 by far the largest area of employment growth was in the public sector. However, there are some differences between the labour market today and that of previous times of economic hardship. The number of public sector redundancies sounds a lot (and it is), but it’s worth highlighting that between 1979 and the mid-1980’s the UK shed 2 million manufacturing jobs2. The coal mining industry alone went from over 225,000 employed in 1980 to just 9,000 by 19983. While not all public sector workers are desk bound, they are quite possibly more suited to the service sector based economy than many made redundant during the 1980’s. The UK does not face the same wholesale structural reform of its economy.
2011 will likely see more measures from central banks and governments to boost the global economy. In the Eurozone and US this may well mean more quantative easing – the US has already embarked on a second round, which has become known as QE2. The UK meanwhile seems to have completed its money printing exercise, although Bank of England Governor, Mervyn King, refuses to rule out further measures at this stage.
It is inflation and the bond market that seem set to be the dominant features of the coming year. We saw a taste of what could be on the horizon last year with mini sovereign debt crises (perhaps not so mini if you happen to be Greek). The possibility that we may see more of the same this year is strong. Meanwhile the impact of inflation in emerging markets is a growing concern, and interestingly the UK also has a robust and persistent inflationary story. However, for us in Britain, while nobody wants to see interest rates rise, inflation might actually be just what the doctor ordered, because without inflation eroding the real value of our debt over time, the government is going to have to work an awful lot harder than it is at cutting the deficit.
1BBC News
2Arbuthnort Private Banking
3Parliamentary Research Paper 1998 – A Century of Change: Trends in UK Statistics Since 1900