Unemployment is set to increase sharply this year, economists have warned, after a Bank of England report showed more firms were looking to axe jobs than at any point for the last eleven years.
The Bank’s monthly ‘summary of business conditions’ said there is ‘a clear softening in labour demand’ and ‘total employment intentions’ were at their lowest level since 1997.
It stated: ‘Weakness in labour demand was most evident in the services sector, with sharp falls in employment intentions in both business and consumer services.
‘A further modest fall was also evident in manufacturers’ employment intentions.
‘The reduction in employment intentions was slightly sharper than the slowdown in current output growth’ with ‘heightened uncertainty about the (economic) outlook and concerns that difficult conditions might persist.’
It said firms were ‘reducing the number of hours of paid work and increasing their reliance on temporary workers – even in management roles’.
Many firms ‘were also leaving vacancies unfilled, allowing headcount to be reduced through natural attrition’.
Describing the slump in manufacturing and construction, the report said: ‘Manufacturing output growth slowed in April, driven by an easing in production for domestic markets.
‘Manufacturers of building materials and consumer goods reported the most pronounced easing in activity.’
The Bank added that as well as the slowdown in banking services ‘since the onset of financial turmoil’ there has been a slowdown in ‘other business services (like logistics and business catering)’.
It went on to paint a picture of slack factories, saying: ‘Capacity pressures were expected to ease significantly over the next six months.’
The cost of raw materials ‘climbed again in April to its highest level since scores were first recorded in mid 1997.’
This ‘reflected increases in the world prices of basic inputs (energy, oil derivatives, building materials and food) combined with the effects of sterling’s depreciation.’
Manufacturing output prices were ‘little changed in the month, but had stepped up sharply since the start of the year.’
It noted that manufacturers had been ‘more active in passing on cost increases in recent months’.
Retail goods prices ‘increased again in April, reflecting ongoing increases in the prices of energy and food.’
The report warned: ‘The outlook was for further upward pressure on consumer price inflation in the near term.’