MPC must act quickly to avert jobs squeeze

More private sector jobs could be at risk later this year if the Bank of Englandís Monetary Policy Committee (MPC) decides to keep interest rates on hold until the autumn.


John Philpott, CIPD Chief Economist, said:
ìTodayís downward revision by the Office for National Statistics (ONS) of first quarter UK GDP growth does not bode well for corresponding figures ñ due for release tomorrow - on productivity and unit wage costs.

ìFirst quarter growth in productivity looks set to be weaker than expected. If so, this is likely to have an adverse effect on wage costs despite some moderation in the rate of pay inflation in recent months.

ìThis poses an obvious dilemma for the MPC. Keeping rates on hold will act as a spur to employers to keep pay rises in check but in a slowing economy could also trigger a rise in recruitment freezes and redundancies.

ìUp until now the MPC has been very successful in signalling to employers that it will act to ensure that any cyclical dips in demand will be short and shallow. As a result there has been a tendency for employers to hoard rather than shed staff during slow periods. But the MPCís challenge during the current slowdown may prove harder because employers in labour intensive service sectors are amongst those experiencing the toughest conditions.

ìAs recent CIPD surveys have shown, while employers are relatively sanguine about short-term job prospects there is growing pessimism about the medium term. This raises the possibility of a jobs squeeze later this year and into 2006 unless the MPC acts to improve employer confidence.

ìIn the present climate, private sector employers are acutely aware of the need to keep pay costs in check. The risk is that if they think they face a marked slowdown they will try to cut costs by shedding jobs. This of course could present an even greater threat to continued economic stability by hitting consumer confidence. An early quarter point cut in interest rates by the MPC would help avert any jobs squeeze and greatly reduce the chances of the economy suffering a hard landing.î