Jobless fears mount as Bank warns policies will take time

Union leaders warn against cutbacks in public spending
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The Independent Online

The Bank of England's policy of "quantitative easing", often likened to printing money, will take many more months to achieve its full impact and the Bank is thinking about its "exit strategy" from the scheme, it confirmed yesterday. Charles Bean, the deputy governor in charge of monetary policy, said the Bank would continue to monitor the progress the policy was making.

So far, the central bank has spent more than £100bn of the £125bn it is committed to spending in an attempt to boost the economy and, in due course, push inflation back up towards its target 2 per cent. Latest inflation data out today is expected to show a further fall in the rate, with most economists predicting that the consumer prices index will sink to about zero by the autumn. The more familiar retail prices index, which takes account of fluctuations in mortgage interest costs, is already negative.

Mr Bean said: "When we change [the] bank rate we expect it to take nine months to work through. The quantitative easing effects are likely to take that long or even longer ... But we are monitoring it to see whether we do more. Things are looking at least as if they are heading in the right direction. The aim is to get money-spending growth back to a level consistent with trend growth and 2 per cent inflation."

Mr Bean said the Bank was cautiously thinking about an exit strategy for the policy, adding: "We are going to need to withdraw the stimulus and we have two ways of doing that. We can raise the bank rate first and unwind asset purchases later. But we don't want to do it too early and nip the recovery in the bud. We will look at conditions one month at a time and try to form our best opinion."

Mr Bean's intervention came as a wave of economists, industry players and unions warned that unemployment would continue to soar even as the economy edged towards recovery. The latest numbers are due tomorrow; most envisage another 40,000 to be added to the total in May as it heads towards a widely anticipated 3 million.

Against a background of ever more intense political speculation about cuts to public spending, the Trades Union Congress warns today that a 10 per cent reduction would lead to about 200,000 public-sector redundancies and "significant job losses" among private contractors. The past few years have seen rapid growth in public-sector employment, especially in health and education.

The TUC says that between 1997 and 2008, public spending increased by £174.6bn in real terms and the number of public-sector jobs rose by 572,000 – 329,000 of them in the NHS. The relative strength of the public sector has prevented dole queues from lengthening even further as construction and manufacturing jobs have melted away. This trend has kept "white collar" unemployment relatively low, with the Chartered Institute of Personnel and Development saying that skilled blue-collar professions have been hit three times as hard as white-collar jobs.

Yesterday, the Monster Employment Index, which measures confidence among online recruiters, showed only a modest improvement in June, with progress in public-sector areas such as schools, universities and hospitals.