Improved jobs trend forecast to continue

UNEMPLOYMENT has peaked and is now on a sustainable downward trend, according to one of Britain's leading economic forecasting groups. But the fall will be agonisingly slow, with the jobless total still barely below 2.9 million at the end of next year.

The National Institute for Economic and Social Research argues in its latest Review that the jobless total probably peaked in January at 2,992,300, around 125,000 less than in the aftermath of the last recession. Unemployment has since fallen for three successive months, reaching 2,939,600.

In its February forecast the NIESR had predicted that unemployment would surpass 1986's post-war peak, reaching 3.17 million early next year. The downward revision is based largely on a slower upturn in the active labour force, with slightly more buoyant employment.

The NIESR stuck to its view - held since November - that the economy will grow by 2 per cent this year, the highest prediction of the 33 City and academic forecasters regularly polled by the Treasury. Greater confidence about domestic demand offsets an expected weakening in export markets. The Treasury forecast in the Budget that growth would be 1.25 per cent this year.

Nigel Pain, author of the NIESR forecast, said the contribution of exports to recovery was uncertain because it was still not clear to what degree exporters would use the gain to competitiveness from a lower pound to increase prices rather than market share.

Growth is expected to accelerate to 2.9 per cent in 1994, slightly lower than the February forecast. Manufacturing output is forecast to rise 3.1 per cent this year, slowing to a rise of 2 per cent in 1994.

The NIESR continues to predict that underlying inflation - excluding mortgage interest payments - will climb above the Chancellor's 4 per cent target ceiling by the end of the year, although by slightly less than thought in February.

As the recovery sucks in imports, the current account deficit is expected to widen to pounds 21bn this year and pounds 20bn in 1994 from around pounds 12bn last year. The public sector borrowing requirement is forecast to be pounds 45bn this financial year - near the Treasury's Budget forecast - falling to pounds 41bn in 1994-95.

----------------------------------------------------------------- NIESR forecasts ----------------------------------------------------------------- 1993 1994 Real GDP (%) 2 2.8 Manufacturing (%) 3.1 2.0 Current account (pounds bn) -21 -20 PSBR (pounds bn, fiscal year) 45 41 Headline inflation (%) 2.8 5.1 Unemployment (Q4,m) 2.9 2.9 -----------------------------------------------------------------