Unemployment set to climb to two million
As many as 300,000 people risk losing their jobs over the next few years as the UK heads into a recession.
That’s the warning from the British Chambers of Commerce’s (BCC) latest quarterly economic report, which paints a dark picture of the future.
It forecasts two “very difficult” years ahead for UK business, resulting in unemployment increasing by some 250,000-300,000 over the next two to three years.
The BCC believes that the government may be forced to raise business taxes in order to avoid breaching its “golden rule”, which only allows it to borrow money for investment purposes.
David Kern, economic adviser to the BCC, says unemployment is likely to hit two million over the next few years, its highest level since Labour came to power in 1997.
"Our quarterly economic forecast highlights a significant worsening in UK economic prospects,” he adds. “There is now a distinct possibility of technical recession.”
The BCC is calling for the Bank of England to cut interest rates sooner rather than later in order to reduce the impact of a recession on the economy, British businesses and individuals.
Kern says: "Our view is that the threats to [economic] growth are more serious and more immediate than the risks of higher inflation. The UK economy urgently needs an interest rate cut to counter threats of recession.”
He predicts that interest rates could be slashed from 5% to 4.75% before the end of the year, before being cut further to 4.5% in the first three months of 2009.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).