Jobless total 'to stick at 3 million'

UNEMPLOYMENT will rise to a post-war record later this year and could still be around 3 million by the end of the decade, according to new reports by two leading economic research institutes.

The National Institute of Economic and Social Research said in its latest forecast yesterday that the jobless total would peak at around 3.2 million early next year. The Employment Policy Institute predicts that the total will continue rising well into 1994, peaking at more than 3.25 million.

The NIESR's forecast for unemployment contrasts with its prediction of a relatively rapid economic recovery this year. It expects the economy to grow by 2 per cent this year - double the Government's forecast and the most upbeat prediction of the 31 City and academic pundits regularly polled by the Treasury.

Today's official unemployment figures will show that more than

3 million people were unemployed and claiming benefit last month for the first time in six years. Adjustment for normal seasonal changes will leave the headline jobless total just below the 3 million mark.

The EPI said that 2 million new jobs would need to be created between now and the end of the decade to bring unemployment back to its pre-recession level of 1.6 million, taking account of an expected 600,000 rise in the workforce in that time.

But the EPI believes the economy will only be able to sustain growth strong enough to produce a quarter of these jobs. This suggests that unemployment will be around 3 million by the end of the decade, with many jobs going to people newly deciding to seek work rather than the unemployed.

The NIESR predicted that the jobless total would fall to 2.9 million in 1996 and would average 2.8 million in the following three years. 'Central and local government, and public corporations, should be delaying any measures which involve laying off workers until the recovery is well established,' it argued.

Continued high levels of unemployment will keep up the pressure on government spending and borrowing. But the rise in inflation resulting from sterling's slide since Black Wednesday means that government borrowing could still fall unexpectedly quickly in the next few years, according to the NIESR.

Underlying inflation is expected to breach the Chancellor's 4 per cent ceiling in the fourth quarter of this year as wage settlements begin to pick up in response to recovery and higher import prices. Underlying inflation is then projected to average between 4.5 and 5 per cent between next year and the end of the decade. Headline inflation is forecast to average about 5 per cent in 1994, although the NIESR warns that 'it could easily be higher if public sector workers seek to restore existing differentials with their private sector counterparts and the Government continues to give the impression that its antipathy to inflation is weak'.

The relatively high inflation forecast explains the NIESR's optimism about the Government's finances by suggesting that tax revenues may recover more quickly than most observers expect.

The NIESR predicts that the public sector borrowing requirement will be in line with the Treasury's pounds 44bn forecast for 1993/4, but well below the pounds 54bn predicted by the Institute of Fiscal Studies in its Green Budget. By 1996/7, the NIESR predicts that the PSBR will have fallen to less than pounds 30bn, while the IFS forecasts that the deficit will still be pounds 55bn. The NIESR argues that an even more dramatic reduction could be achieved through measures such as road pricing.

The NIESR believes that the March Budget should be neutral. Tax increases should be delayed until December and only made if the recovery is firmly under way. Interest rates should be cut if the economy fails to recover in the first three months of the year or if the pound strengthens.

The NIESR also cast doubt on the case for an independent Bank of England. Problems emerge if the Bank's objective of price stability is inconsistent with the Government's concern for the level of output and employment.