Whilst the predictions of dramatic post-Leave-vote economic decline and rising unemployment failed to materialise, new reports are predicting that unemployment rates are set to rise over the next few years, in addition to rising inflation. At the moment, the unemployment rate in the UK is 4.7% and, according to a report by the EY ITEM Club, is expected to rise to 5.4% in 2018 and 5.8% in 2019. With news of finance jobs moving out of London, predictions of a continued slowing in graduate recruitment and more recent news of students warned that Brussels jobs are ‘out of the question’, the financial impact of Brexit on young people is starting to be felt.
That’s not the only bad news: uncertainty surrounding the outcome of the Brexit negotiations and the snap election on June 8th mean that over the next year, UK companies are planning on giving pay rises of just 1%, whereas the last official figure for inflation was 2.3%. With tomorrow’s release of the April figures expected to show a rise to 2.6%. – the highest since September 2013 – it’s likely that many of us will have to adjust to a lower standard of living than we’ve been used to over the past few years.
If it seems like things have been getting more expensive recently, that’s probably because they are; the sharp fall in the value of the pound after the Brexit vote last June means that imported goods are more expensive and this is now trickling down into higher prices in shops. Unsurprisingly, shoppers have cut back on spending, meaning that in the first quarter of this year, the growth rate has been the slowest it has been for a year, falling from last quarter’s 0.7% to 0.3%. Granted, the fall is far from the extent that some commentators predicted for post-Brexit-vote Britain, but it is expected fall even further.
It is, however, not all doom-and-gloom: the EY ITEM Club report suggests that employment confidence is still high, particularly for manufacturing, where the fall in the pound has helped make British exports more competitive in the foreign markets. The more optimistic economists, such as Ian Stewart, the head economist of Deloitte, say that despite inflation rates looking set to remain high, quarterly growth can often be variable and is looking like a ‘cooling, not collapse’.
That may not give you much reassurance, however, when David Blanchflower, a former Bank of England policymaker and London School of Economics professor, is saying that wages are likely to remain low for several years. He’s particularly critical of how the Bank of England is handling the situation, as their forecasting for wage growth consistently expects it to revert to around 4% within 18 months which, at least for the last 10 forecasts, just hasn’t happened.
For companies, the low wage increase may help keep them afloat and therefore protect some jobs. It’s worth mentioning that unemployment, although expected to rise, has rarely been lower over the past 40 years, however the new report suggests that this figure disguises the fact that the number of unemployed or under-employed is close to 5 million people. Reports in 2016 found that over 50,000 new graduates were taking non-graduate jobs to avoid unemployment. Additionally, with rising inflation pushing up student loan interest rates, young people are looking to be more in debt than ever, and thanks to the pay-rise-to-inflation ratio, it’s perhaps not surprising that 1 in 3 renters are getting into debt to cover their rent.
With the new reports showing that the impact of the Leave result is finally being reflected in the job market, the uncertainty surrounding the snap election on the 8th June is likely to throw a few more changes into the mix, although if the Brexit predictions are anything to go by, it could be a while before we start to see the economic effects. But, for the moment at least, looking into current reports increasingly feels like trying to find silver linings to some very dark clouds.
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This article originally appeared on The Debrief.