The Ernst & Young Item Club, a group of independent economists who use the same computer model of the economy as Treasury officials, said a prediction of flat employment until mid-1995 throughout the non-oil economy was implicit in the Budget forecast prepared by the Treasury.
Item added that the Treasury appeared to be planning at most only one more cut in interest rates, from 5.5 to 5 per cent.
Their comments were re- inforced by the latest monthly survey of purchasing managers by the Chartered Institute of Purchasing and Supply, which also painted a picture of flat employment in manufacturing, although it also suggested that the recovery in factory output might be accelerating.
Brian Pearce, Item's chief economist, said the prediction of zero jobs growth in the next year and a half was 'pretty grim'. It was based on the belief that companies would try to keep costs down by producing more output with the same number of workers.
Unemployment would only fall as the supply of workers dropped, either because of a shrinking working population or greater discouragement among people trying to find work.
The Treasury's gloom on employment - at odds with the upbeat new year message from David Hunt, the Employment Secretary - would explain why the Government plans to limit entitlement to benefits for people without work for six months or more. The Treasury also hopes that pilot schemes to withdraw benefits from people refusing help to find new jobs will also bear down on the jobless total.
A more upbeat prediction of employment prospects comes in a report published today by Cambridge Econometrics, which expects private sector service industries to have created more than 200,000 new jobs by the end of 1995, although the public sector will shed more than 50,000 workers to meet the Government target of zero growth in the public sector pay bill.
Item added that the Treasury was being over-optimistic about Britain's export performance. Mr Pearce described the Treasury's forecast of 4.25 per cent growth this year in export markets as 'pretty heroic' and inconsistent with its gloomy prediction of economic growth in Germany.Reuse content