Job losses: November

© 1998 Unemployment Unit & Youthaid
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Economy round-up

by Paul Convery

Working Brief 100, January 1998 - January 1999

In his pre-Budget statement on November 3rd, the Chancellor confirmed that revised Treasury estimates put the rate of GDP growth for next year at between 1% and 1½% and returning to the range of 2¼% to 2¾% in year 2000. However, the "consensus" figure for next year has been challenged by the CBI’s subsequent revision of its own estimate from 1.2% down to just 0.7% annual growth.

The slowdown in growth will also dampen inflationary pressures and the Treasury predicts that inflation (measured as RPI minus mortgage interest payments) will hold steady at 2½% over the next 3 years. The Chancellor’s statement also has spending and borrowing assumptions that suggest a high degree of optimism about the public finances:

the Government will borrow £4 billion next year in line with forecasts and £5 billion the year after - compared with the previous forecast of £6 billion;
following the Comprehensive Spending Review announced in the Summer, the Treasury will fund an extra £40 billion spending on health and education;
health spending will rise by an extra £250m this winter.

These items of public expenditure growth - which are in labour intensive sectors - seem likely to boost employment by the middle of next year. Optimism about the jobs market is also reflected in a key premise to the Chancellor’s statement - that unemployment will not rise in the next three years. This has allowed the Treasury to cut forecasts for social security spending by £3.1 billion by 2001-2002.

GDP forecasts show that, apart from the Far East, growth in Britain will be the lowest amongst the main OECD countries:

	1999	1998
UK	0.7%	2.6%
France	2.3%	3.0%
Italy	2.1%	1.7%
Germany	2.0%	2.7%
Canada	1.8%	3.0%
USA	1.7%	3.4%
Japan	-0.8%	-2.6%

Interest rates cut

Mortgage lenders are likely to cut their rates before Christmas in response to the Bank of England's decision to lower interest rates by a larger-than-expected half a point to 6¾%, the biggest reduction for four years. The main lenders quickly followed the Bank's lead and announced a half-point reduction for home buyers. However, UK rates remain substantially higher than their ‘wholesale’ equivalents (3 month money market rates) in most other OECD countries:

UK	6.9%
USA	5.0%
Canada	4.8%
Italy	3.7%
Germany	3.6%
France	3.5%
Switzerland	1.6%
Japan	0.5%

Job losses

There was a marked increase in published job loss announcements made during November. As the table opposite shows, we have identified announcements that will lead to 19,000 people losing their jobs in the coming months, compared with just over 8,000 in October. We do not claim to have a watertight methodology for our survey of these announcements. But having gathered both months’ information on the same basis, the strong conclusion must be drawn that November has been a significantly worse period for lay-of announcements. In many cases, these job losses will not translate into implemented redundancies until after Christmas. So they point to a likely worsening of unemployment in the New Year.

The table shows that four sectors in particular are facing severe difficulties:

Steel where the largest producer, British Steel and its subsidiaries, will shed nearly 2,200 by the year-end and predict another 2,000 lay-offs during 1999/00. The company has blamed a massive surge in cut-price imports from the Far East which has led to an unprecedented deterioration in prices.
Textiles where Far East pricing has damaged UK sales and the level of Sterling has held back exports. One very large purchaser - Marks and Spencer - is re-sourcing many of its garments and UK firms are suffering. Both factors have caused firms to announce 1,300 job losses.
Petroleum based energy firms have reacted to oil prices which - at about $11 per barrel - are at their lowest for almost 25 years and signaled job losses of 1,550. Shell UK which announced 2,000 losses in October has added another 1,000 by accelerating its restructuring and cost-cutting drive - it is still unclear whether all job losses will be in the UK. The company has just reported its third-quarter profits were down 56%. A similar story was revealed at British Petroleum which is down 30%.
Financial institutions are in a state of near meltdown with City based firms drastically restructuring and heralding cuts to a further 2½ thousand jobs. This follows a similar number announced last month. Unlike many other company announcements, City lay-offs are almost instantaneous with many employees receiving the "bin liner" treatment. Those picked for sacking are immediately marched out clutching their personal possessions - often in black plastic sacks.

The effect of stricter employment regulation in mainland Europe seems to be impacting adversely in the UK. Whilst flexibility attracts overseas companies to locate in Britain, in harsher times, that same lack of rigidity makes them more inclined to make their UK workers redundant because the laws and financial penalties are far tougher elsewhere. A good example is the American investment bank Merrill Lynch which had initially planned to lay off 400 staff in London and a further 50 employees from its other European offices. Many of the European staff are now expected to move to London because, as one manager at the bank admitted "the main problems lie in Frankfurt and Paris... it is much easier to fire staff in London".