The latest official Labour Market Statistics make depressing reading:

• UK unemployment has climbed to 2.51 million – the highest since 1994.
• Economically inactive people now total over 8 million.
• A staggering 941,000 16-24 year olds are out of work.
• Over a million people are working part-time because they say they can’t find full-time work.

It may be small comfort, then, that for those of us old enough to remember we have seen worse. Compared to the two most recent recessions of 1980-81 and 1990-91 the recent fall in the Gross Domestic Product (GDP) has been substantially greater.  In contrast the unemployment impact this time around has been considerably less severe. The main difference has been the decision to inject money into the economy through high levels of government spending and borrowing which has minimised the impact of this recession on employment. 

The good news is that it seems to have worked. However, such a result has clearly come at the price of high levels of public sector borrowing. And this has now become the challenge for David Cameron’s new coalition government. How can you substantially reduce the budget deficit without driving unemployment through the roof? 

It’s not an easy circle to square as deficit reduction inevitably leads to public sector spending cuts. These cuts are likely to reduce demand for private sector goods and services, further driving down GDP and ultimately threatening a return to recession – the fabled double-dip. Getting the balance right is going to be difficult. For employers it is hard to conclude other than that recovery will be long and slow.