Unemployment jumped to 8.1 percent in the three months to August, the highest rate since July 1996. Such a rise casts further doubt on the recovery of the private sector in the UK. Labour has unsurprisingly blamed the Government’spublic sector spending cuts for the weakness of this month’s figures. The Government has pointed to the increasing turmoil in the eurozone for the current weakness in economic performance.
It is certainly true that the Government’s spending cuts are having a negative impact on the labour market, but such a policy should be viewed in the wider context of the UK’s budget deficit. Indeed,the current turbulence in the eurozone shows the impact that poor public finances can have on national economies. But such turbulence may well require a policy response from the Government to counter the impact it may have on the UK economy. George Osborne will be hoping that the increase in quantitive easing last week will provide an adequate response. But he is likely to come under increasing pressure to loosen fiscal policy before his Autumn statement next month.