UK unemployment falls – very slightly

UK unemployment fell by 4000 to 2.51 million in second quarter of this year. But this was too small to have any significant effect on the unemployment rate, which remained at 7.8%.

According to the forward guidance issued by the Bank of England, Bank Rate will stay at 0.5%, barring serious unforeseen circumstances, until unemployment reaches 7%. So will this be soon?

There are good reasons to suggest that the answer is no. Reasons include the following:

(a) Many firms may choose to employ their part-time workers for more hours, rather than taking on extra staff, if the economy picks up.

(b) The recovery is being fuelled by a rise in consumption, which, in turn, is being financed by people drawing on savings or borrowing more. The household saving ratio fell from 7.4% in 2012 Q1 to 4.2% in 2013 Q1. This trend will be unsustainable over the long run, especially as the Bank of England may see a rapid rise in borrowing/decline in saving as serious enough to raise interest rates before the unemployment rate has fallen to 7%.

(c) Despite the modest recovery, people’s average real incomes are well below the levels prior to the deep recession of 2008/9.

The articles consider the outlook for the economy and unemployment


UK unemployment holds steady at 7.8pc The Telegraph, Rebecca Clancy (14/8/13)
Unemployment rate is unlikely to fall sharply The Guardian, Larry Elliott (14/8/13)
UK unemployment falls by 4,000 to 2.51 million BBC News (14/8/13)
UK wages decline among worst in Europe BBC News (11/8/13)
Squeezing the hourglass The Economist (10/8/13)
More people in work than ever before as unemployment falls Channel 4 News, Faisal Islam (14/8/13)


Labour Market Statistics, August 2013 ONS
United Kingdom National Accounts, The Blue Book, 2013: Chapter 06: Households and Non-profit Institutions Serving Households (NPISH) ONS


  1. What factors determine the rate of unemployment?
  2. With reference to the ONS data in Labour Market Statistics, August 2013 above, what has happened to (a) the long-term unemployment rate; (b) the unemployment rate for 18–24 year olds?
  3. How would you define ‘living standards’?
  4. How is labour productivity relevant to the question of whether unemployment is likely to fall?
  5. How much have living standards fallen since 2008?
  6. Under what circumstances might the Bank of England raise interest rates before the rate of unemployment has fallen to 7%?
  7. Property prices are beginning to rise. Consider the effects of this and whether, on balance, a rise in property prices is beneficial.