United Kingdom: “Deflationary Imperatives” at Work

The jobless rate in the United Kingdom has been rising.

All the while, the government is cutting back on the amount of help it's offering to the unemployed.

Elliott Wave International's Global Market Perspective says "deflationary imperatives" are at work in the U.K.

Let's start off with this Nov. 25 article excerpt from the BBC:

While many parts of the country went into lockdown to combat the spread of the virus, unemployment numbers have been rising sharply. How high could the unemployment rate go?

How many people are unemployed?

The most widely used measure is the unemployment rate. It counts how many people are able to work and want a job, but can't find one.

The most recent unemployment rate - for July to September - was 4.8%, according to the Office for National Statistics (ONS).

That is an increase of 0.7% over the previous three months, and meant that 1.62 million people were unemployed.

However, this number is always based on surveys taken in previous months and is not right up to date. Some of the data was gathered in July and August, when infection rates were falling, and large parts of the economy were reopening.

So this figure is likely to carry on rising in coming months.

How high could unemployment go?

Most economists expect unemployment to continue rising for the rest of the year.

UK unemployment is likely to reach 2.6 million in the middle of 2021, according to the government's economic watchdog, or 7.5% of the working age population. It's currently about 1.6 million.

This is echoed by the Bank of England, which forecasts that unemployment will most likely peak at about 7.7% in April to June of next year.

There was a high degree of uncertainty around that forecast, with a small chance that it could rise as high as 10%.

Elliott Wave International's November Global Market Perspective, a monthly publication which provides forecasts for 50-plus markets worldwide, showed this chart and said:


According to the chart, monthly jobless claims show no sign of slowing down...

The pandemic has changed the economy in many fundamental ways, and business owners must adapt to the new realities. Yet, government stimulus actually incentivizes them to delay the process of making those necessary changes. On October 9, Chancellor of the Exchequer Rishi Sunak announced a new plan to pay two-thirds of furloughed workers' wages down from 100%. According to Bloomberg, the new plan is an attempt to "lower the cost of his old plan, which offered blanket aid for jobs." (10/09/20) The opposition party spokesperson shot back: "The fact the Chancellor is having to tear up his Winter Economic Plan before the autumn is out demonstrates the chaos and incompetence at the heart of government." We disagree, again. The plan actually demonstrates something far more important: that deflationary imperatives are now forcing his hand.