MercoPress. South Atlantic News Agency

Unemployment fears threaten UK recovery says Bank of England

Worried households are cutting back on spending

Unemployment threatens to hamper the UK economic recovery as worried households cut back on spending, the Bank of England has warned. The latest quarterly bulletin said there was a risk of rising dole queues if “the recovery in demand proves more sluggish than businesses have expected”.

Additionally the Bank said that the “considerable uncertainty” over the outlook for the labor market might prevent consumers from spending.

“Further job losses may lead households to increase their precautionary saving to insure against loss of work. That will mean households have less money available to spend on goods and services.

”And if some people suffer an extended period of unemployment, they may be unable to retain or acquire the skills sought by employers, limiting the recovery in output,” it said.

The warning comes despite improving official data from the labor market, showing a 3,000 fall in unemployment between October and December to 2.46 million.

The Bank highlighted several risks facing the jobs market including a weak recovery, job cuts through public sector belt-tightening, and more firms going under if lenders take a harsher stance on struggling companies.

Greater confidence over the outlook among staff could also make them less willing to accept a further squeeze on wages and force companies to shed labor, it added.

Although the economy contracted by a record 6.2% during the recession, unemployment rose by far less than the slump of the early 1990s. The Bank put this down to factors such as falling unionization among workforces, and greater flexibility among staff over accepting pay freezes or shorter hours to prevent wider jobs cull.

The labor pool also fell less than in the 1990s as uncertainty over pensions following the crisis encourages older people to defer retirement.