More Unemployment by the End of the Year?

from our economics correspondent The National Institute of Economic and Social Research has just published its appraisal of the economic outlook for the next twleve months. It has some interesting points to make, It forecasts that by the end of 1966 unemployment will be around 450,000 and still rising, Most economic observers had predicted rising unemployment by this winter, but in practice unemployment has fallen to its lowest figure for nearly ten years, Given the deflationary measures. taken since October, 1964, this has been the source of some comment and surprise, However, it now seems that there were some unexpected elements in the’ situetion-last- year,--The-effect of the reduction of the normal working hours in many indwtries seems to have had a larger impact than the previous deflation of 1960-61. Also it seems clear that the employers have been hoarding ‘labour for a longer period than previously, Another factor seems to have been the continuing effects of the big increases in investment, both in the public and private sectors in 1964, which lasted well into 1965. Coupled with this was the reduction in personal savings in 1965, which would tend to keep demand buoyant for longer than anticipated, Some of the above factors can be expected to weaken in coming months. The latest Confederation of British Industry's survey of industry shows that profit margins are under growing pressure, Three-fifths of industry reported rising unit costs, and only 14% reported increased selling prices. Moreover, 47% reported that they were working below capacity, whilst only 33% reported a rise in total orders, as against 66% either having static or decYifg total orders. For export orders, only 22% reported increased orders as against 18% as being down or static. This is an important point to keep in mind,since there are reports that the U.S. Government may soon be forced to take steps against the growing inflationary sitetion in America. This could lead to a loss of British export orders, and possibly a movement of funds from London to New York if the U.S. bank rate is raised, If any large movement of funds does take place it could mean a return to the 7% bank rate here and also a further credit squeeze. The NIESP, however, have warned against a deflationary budget given the existing siutation. But give a deterioration in the reserves (and sterling is under pressure again ) a tough budget will be forced upon the Government, given its commitment to preserve the exchange rate and its unwillingness to impose import quotas. Therefore there is a real possibility that unemployment may rise at_a somewhat faster rate than the Institute's forecast, Further, the Institute calculates that the Government's prices policy held down retail price rises by about only #% in 1965. What all this does mean is that antitrade union legislation and a tough incomes policy will become the major a ee 8 i eee. ee ee eee BD Be ln ee ee