By Edmund Greaves

We’ll get the latest iteration of employment data from the Office for National Statistics (ONS) tomorrow, Tuesday 16 October. This is followed in quick succession by inflation on Wednesday 17 October.

Unemployment is the big scary thing that never happened. At least – not in a real way since the Great Financial Crisis (GFC). It is the economic dog that has simply refused to woof, despite a ‘ruff’ (sorry) few years.

Let’s take the GFC as an historic yardstick here. Unemployment reached 8.4% in its wake. Interestingly, as this guide from the ONS nicely illustrates, this took quite a few years post crisis to actually peak – with unemployment receding from around 2012 onwards.

Prior to the onset of the COVID pandemic, unemployment made its way steadily down to below 4%. This then obviously took quite a swift turn once the pandemic set in – reaching 5.3% in November 2020 to January 2021 data. But this is barely above where unemployment was at the start of the GFC (thanks in large part to the furlough scheme).

At the last measure unemployment was 4.1% – very slightly above but not far off historic lows.

Measuring unemployment is a tricky thing, because definitions blur, and people can fall into quite a lot of categories at the same time, with economic inactivity the big issue (i.e. who is doing what at any given moment and why).

Employment/unemployment is also a heavily lagging indicator. This means the data it reflects is often well behind what is actually going on outside in the wider economy. On top of that, there has been significant uncertainty in the quality of the data in recent times.

That being said, despite a significant increase in the base rate, we have not seen employment levels implode. Although not a desirable outcome, increasing unemployment does inadvertently help to quell inflation (because people don’t have money pretty suddenly).

But rising unemployment can be politically very volatile. Westminster is painstakingly worried about making sure people have jobs, even if it’s not often talked about.

Businesses have however largely tolerated higher levels of interest, which is good. We have also had a fairly substantial shortage of workers in scads of sectors which has also helped keep the job market tight. Job vacancy rates have fallen steadily, but with record immigration levels of late there is an argument that this is what has staunched some of the shortages in staff.

The question now is whether we might finally get that woofing everyone has been watching for as the economy shows signs of really beginning to struggle (remember it has already technically had a recession in 2023).

Although the Labour Government has just introduced a wide-ranging package of labour market and employment reforms, it is going to be some time before we see any long-term effects of that.

It also contains some fairly considerable concessions to business (such as nine months probationary periods) which will temper some of the impact it might have on the labour market.

No, if we’re going to get widespread GFC-style rises in unemployment then it will need to come from a proper GFC-style recession. At this point with rates falling, the only thing that is going to cause that is a major black swan global event – think pandemic, maybe an oil crisis which causes a credit crunch.

Or a major policy blunder of some sort, perhaps at a major fiscal event, through leaders talking down the economy and being really gloomy about everything.

All that said, tongue in cheek, a recession won’t simply will itself into existence for no reason.

Employment levels are the one signal that has never really flashed red despite everyone watching for it to start howling.

As everyone keeps telling me, the Budget might have something to say about that. But my wager would be Messrs Bailey et al won’t hesitate to slash rates to support the economy, were the Government to decide some serious fiscal squeezing was the order of the day.

To misquote RFK (no, not the junior one), we live in interesting times. That much seems unlikely to change.