UK Unemployment Hits 15-Year High as Austerity Plans Falter

The principle but opposed beliefs about austerity are 1) that budget cuts balance national books and 2) that they kill the stimulation necessary to rekindle economic growth during and after a recession. UK employment statistics for the three months that ended in August show that the government’s austerity plan has failed to create jobs. Although the plan cannot be directly linked to increased jobs loses,  the presence of the two overlaps. Austerity may be, as many economist believe, the natural enemy of growth, and the new data supports that.

The UK Office for National Statistics reported for the period just ended:

The unemployment rate for the three months to August 2011 was 8.1 per cent of the economically active population, up 0.4 on the quarter. The last time the unemployment rate was higher was in the three months to July 1996. The total number of unemployed people increased by 114,000 over the quarter (the largest quarterly increase since the three months to July 2009) to reach 2.57 million.

Austerity in Greece and other troubled nations, like Italy and Spain, has been driven by the capital markets’ unwillingness to lend these sovereigns capital at any reasonable rate. The UK is different. S&P confirmed the nation’s AAA rating just last week, although it labeled the nation’s recovery as lackluster. That means the UK should be able to borrow money on better terms than the U.S., although on a practical basis that has not been true because of the demand for Treasuries as a safe haven.

The UK has opted for austerity of its own will because economists and credit agencies have warned that its deficit and national debt have begun to reach unsustainable levels. Those things may be true, but the path away from them may not be austerity. A look at the UK unemployment levels for the past quarter is a strong indication that stimulation, and not austerity, is the most likely tonic of the nation’s problems.

Douglas A. McIntyre