Defining the "zombie economy"

Elliott defines the "zombie economy" as follows:

Neither alive nor dead, the UK economy is in limbo land, staggering along courtesy of taxpayer billions, low interest rates and a short-term VAT cut. [...] The cocktail of cheap money, quantitative easing and deficit financing has arrested the economy's decline but that's about it.

In Elliott's view, once these measures are withdrawn, the prognosis for the "zombie economy" could be bleak.

And it seems likely that rising unemployment could also play a significant role in preventing the "zombie economy" from returning to life.

Public sector job cuts in 2010 and unemployment

Latest unemployment data showed that while unemployment continues to rise, it is nonetheless increasing more slowly than was expected. This month's unemployment figures - set for publication next Wednesday (11 November 2009) are likely to show this trend continuing.

But the current moderation in the rise of unemployment could be short-lived, given the inevitability of public sector job cuts in 2010.

As Sunday Times economics editor David Smith notes, public sector pay restraint will not be sufficient to save jobs. According to Smith:

[P]ublic sector employment will have to be cut, even with the wage freeze.

Why the Pre-Budget Report 2009 is crucial

Much now hinges on the Pre-Budget Report 2009.

The Pre-Budget Report 2009 could well provide the first indication as to the exact number of public sector job losses. In the meantime, some commentators speculate that the extent of public sector job cuts will be severe. For example, Vicky Redwood of macroeconomic research consultants Capital Economics expects around three-quarters of a million public sector jobs to go. Redwood says:

We think the fiscal squeeze could require around 750,000 job losses in the public sector, meaning unemployment should easily surpass three million.

Such a severe rise in unemployment could well dent consumer confidence, in turn sending the UK's precarious economic recovery into reverse in 2010.

But other commentators now argue that the Pre-Budget Report 2009 will see a "public spending spree" (external website), designed to provide a stimulus for the UK economy.

• The exact date on which the Pre-Budget Report 2009 will be delivered is not yet known, but XpertHR will once again publish a live blog here on Employment Intelligence, spelling out the key points for HR practitioners when Darling makes his speech.