| In the past 15 years, unemployment has fallen | | | | played a role in encouraging and motivating people |
| from a peak of 3 million to under 900,000. The | | | | to get back to work. It is hard to quantify how |
| claimant count shows that the % unemployed is | | | | much this has actually reduced unemployment but |
| close to 3% a big drop from 10% in 1992. The | | | | it is likely to be significant. |
| Labour Force Survey also shows a drop in | | | | Why is Inflation Also Low |
| unemployment, although it does shows a slightly | | | | Quite often a fall in unemployment leads to a rise |
| higher rate of unemployment (4.5%). Inflation has | | | | in inflation. This is what Phillips curve analysis |
| also fallen in the UK. CPI inflation is currently 2.1% | | | | predicts. However, the UK economy has enabled |
| very close to the government's target of 2%. | | | | a fall in unemployment without causing inflation. |
| This low inflation rate is in contrast to the 70s and | | | | This is due to several factors. |
| 80s when inflation was often in double figures | | | | 1. The growth has been sustainable. |
| Reasons for the fall in Unemployment | | | | The MPC have avoided an economic boom. |
| 1. Long Period of Economic Growth. | | | | Aggregated Demand has increased at a similar |
| The UK has experienced the longest period of | | | | rate to Aggregate Supply and this has enabled |
| economic growth on record. Growth has been | | | | inflation to be kept under control. |
| close to the long run trend rate of 2.5%, this | | | | 2. Global Inflation is low. |
| stable growth has enabled firms to expand and | | | | The UK's low inflation has been helped by low |
| create employment. It is also important that the | | | | global inflation. Until recently, commodity prices |
| growth has been sustainable. The UK has largely | | | | have not been increasing. But, the main factor is |
| avoided the boom and bust economic cycles | | | | the downward pressure on prices from |
| which characterised the 1970s and 1980s. | | | | developing countries like China. Helped by better |
| 2. Flexible Labour Markets | | | | technology and low labour costs many goods, |
| There has been increased labour market flexibility | | | | especially electronic goods, are experiencing falling |
| which has enabled some workers to get a job. | | | | prices. |
| For example, there are more part time and | | | | More on Inflation Predictions in the UK |
| temporary jobs, these flexible job contracts have | | | | Forecast for the Future. |
| encouraged firms to offer more employment; | | | | The slowdown in house prices and global growth |
| however, it is also been suggested that the | | | | could cause a slowdown in growth. At the |
| employment created is less permanent. | | | | moment, the prospects for a recession are limited |
| Proponents of the flexible labour market argue | | | | as the economy is still growing reasonably well; |
| that higher unemployment in France and Spain | | | | the MPC have also room to cut interest rates if |
| show that flexible labour markets are important | | | | necessary, to boost aggregate demand. |
| for keeping inflation low | | | | If the economy slows down, inflationary |
| 3. Decline in Structural Unemployment | | | | pressures should fall. Although quite recently the |
| The lower unemployment in the UK is partly due | | | | MPC warned of rising cost push inflation from |
| to improvements in education and training and | | | | energy prices and food prices. This could lead to |
| geographical immobility. Better training has held fill | | | | both higher inflation and higher unemployment. |
| up labour shortages. The New Deal has also | | | | |