Economy

Will Brexit Drive U.K. Unemployment Back Toward 10%?

Douglas A. McIntyre

Published: June 24, 2016 11:29 am

Last Updated: January 13, 2020 6:24 am

Which is worse for jobs in the U.K.? The Great Recession, or the Brexit? The world is about to find out.

At the peak of the recession, U.K. unemployment reached nearly 9%.  Now at 5%, the question of what will happen in the next year has become an essential part of forecasts for the economy. If the IMF is correct, the Bexit will be worse by far

The IMF took a dim view of options:

The UK economy has performed well in recent years, but it faces important challenges and risks. Economic growth has consistently been near the top among major advanced economies, the employment rate has risen to a record high, the fiscal deficit has been reduced, and major financial sector reforms have been adopted. Nonetheless, the economy still faces vulnerabilities, including those related to possible shocks to global growth and asset prices; property markets that have been buoyant in recent years; a wide current account deficit and low household saving rate; and uncertainty about the degree to which productivity growth will recover. In the near term, the largest risks and uncertainties relate to the upcoming EU referendum. Given the importance of the referendum, this report and the accompanying Selected Issues paper include analysis of the referendum’s potential macroeconomic implications for the UK and the global economy, while recognizing that this choice is for UK voters to make and that their decisions will reflect both economic and noneconomic factors. This analysis finds that the economic effects of an exit would likely be negative and substantial for the UK. In this event of a vote to leave the EU, policies should be geared toward supporting stability and reducing uncertainty.

In the Great Recession, U.K. GDP fell over 2% in two consecutive quarters, and was down for a total of six.

According to the Office for National Statistics, the results of the period:

Jobs
• Workforce jobs decreased over all English regions and in Wales between 2008 Q2 and 2010 Q2. The West Midlands saw the largest percentage of job losses, a 4 per cent decrease equating to 116,000 jobs
• During this period the Manufacturing, and Wholesale and Retail Trade industries had the greatest loss of jobs. These two sectors combined contributed to at least 39 per cent of the total job loss in the East of England, East Midlands, South East, South West, West Midlands and Wales
• The Human Health and Social Work activities and Education industries saw the most consistent increase in jobs across the English regions and Wales, which compensated for some of the losses seen in other industries. In London the number of jobs in the Human Health and Social Work activities and Education sectors increased by 13,000
Income
• The rate of change for basic earnings fell continuously from mid-2008 to the end of 2009. However, until September 2009 the annual percentage change in basic earnings remained above the inflation rate. The first six months of 2010 were marked by a sharp increase in bonus payments and a small increase in basic earnings, much lower than the inflation rate
• In the majority of areas average gross household earnings grew less in the two years to 2010 than in the year to 2008. Among English regions, the North East had the highest increase (4 per cent) in the year to 2009, only 1 percentage point below the increase in the previous year. In the year to 2010 the North West saw the smallest increase of all areas, 1 per cent

And, what do economists have to say about the Brexit effect. The IMF pointed out that the event could shave 5.5% of GDP, worse than the impact of the Great Recession. It also supposed that the stock market would crash and that there would be another housing crisis.

On balance, if the IMF is close to right, unemployment could soar over 10%