The International Monetary Fund lowered its forecast for 2013 economic growth in the United Kingdom on Tuesday and said Prime Minister David Camerons government should consider easing austerity measures because of the countrys weakening economic recovery.
Signs that the U.K. is struggling to stay on the road to recovery are evident in force. Data released by the Office for National Statistics on Wednesday showed that the number of Britons out of work rose by 70,000 in the three months through February, representing the largest increase in unemployment since late 2011. In total, 2.56 million people are out of work, and the latest increase pushed the unemployment rate to 7.9 percent from 7.8 percent, the highest level since the May to June period of 2012.
Alongside the rise in unemployment, ONS data revealed that average earnings — excluding bonus payments — in the same period eked out only a 1 percent gain from the year-ago quarter. That gain was the smallest increase since records began in January 2001. Even worse, the rise in average earnings was offset by an increase in prices for goods and services. With prices rising at an annual rate in 2.8 percent, Britons spending power has continued to decline sharply.
Decreasing spending power has been bad news for the British economy in recent years; weak consumer spending has contributed to the economys stagnation since the middle of 2010, noted The Wall Street Journal, and that problem seems unlikely to change this year. “A serious concern for consumer spending prospects going forward is that households are faced by a damaging combination of higher inflation, very weak earnings growth and a softer labor market,” IHS Global Insight economist Howard Archer told the publication…
In 2012, unemployment in the U.K. began dropping, but that trend has begun to reverse course; unemployment has risen in two of the last three months, a development that could make it more difficult for the government to cut spending because jobless benefits will inflate the budget. Further complicating the recovery is the state of the economy, which has barely grown since Cameron took office. Britains economy is now at risk of contracting for the second consecutive quarter in the first three months of 2013, and if this occurs, the U.K. will enter its third recession in five years.
But still, Cameron and his finance minister, George Osborne, remain determined to keep implementing their plans to curtail Briatins yawning budget deficit. As the Journal reported, Osborne is depending on the Bank of England to support growth while the governments austerity drive pushes onward. Central bank officials are considering new methods to boost the supply of credit in Britain — according to the minutes of its rate-setting Monetary Policy meeting, held April 3 and 4 — but many officials remained divided over the wisdom of additional stimulus.
In a unanimous vote, the nine-person panel decided to keep the central banks benchmark interest rate at 0.5 percent. In addition, Governor Mervyn King and two other officials repeated an earlier proposal to boost stimulus, but their plan was voted down by the other six panel members, who decided to keep the size of the bond-buying program at 375 billion Pounds ($576 billion). Yet, some economists believe that the increase in unemployment and slowdown in wage growth will push the Monetary Policy Committee to increase its bond-buying program soon.
“Bleak looking labor market data raise the prospect of the Bank of England stepping up its asset buying program in May,” Markit Economics chief economist Chris Williamson told the Journal.
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