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Unemployment in Wales forecast to exceed UK rate with a tepid recovery

Unemployment in Wales will rise sharply over the next three years eclipsing the rate for the UK as a whole with tepid economic growth, predicts think tank the National Institute of Economic and Social Research (NIESR)

Over the 2021-2023 period it is forecasting that unemployment in Wales will reach 6% or more, compared to a UK average of 5.2%.

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Latest figures from the ONS show an unemployment rate in Wales of 4.1% and for the UK as a whole of 4.7%. NIESR said that together with unemployment, labour force participation is also under stress.

It is projecting Wales to experience a sharp rises in economic inactivity over the next three years, with the rate rising to more than 40% compared to a UK average of 37%. The economic inactivity figure accounts for retirees.

For economic inactivity for those of working age the rate in Wales is currently 22.5% and for the UK 21.1%.

As economic growth accelerates after the lifting of many lockdown restrictions across the UK, the recovery in the devolved nations and English regions will vary widely, says NIESR.

Wales is projected to just about catch up with its pre-pandemic levels of economic output, as measured by gross value added (GVA), by the end of 2024, a year later than England and Scotland. This is still far below pre-pandemic trends.

Latest figures from the ONS show that the Welsh economy expanded by 0.9% in the final quarter of 2020, while GDP for England rose 1.2%, Scotland by 2.3%, Northern Ireland 0.7%, over the Q3.

Composition of income, consumption and savings also varies significantly across the UK. The central projection is a continued rise in the savings ratio over the Covid-19 lockdowns (2020-21) and beyond (2021-22). Among the four nations, Wales is projected to have both the lowest share of wages and pensions in total income and the highest and rising savings rate.

Co-author of the report Prof. Arnab Bhattacharjee (NIESR research lead and Heriot-Watt University), said: “The sharp rise in unemployment and inactivity will hit some of the poorest section of Welsh society hardest. We suggest ongoing welfare support, with enhanced Universal Credit continuing for longer. In addition, regional regeneration must be supported by directing higher savings towards investments in infrastructure, skills and good and green jobs.”

Huw Dixon, NIESR research lead for economic measurement and professor of economics at Cardiff Business School, said: “Whilst in some ways the economy of Wales was hit less hard by the pandemic than other parts of the UK, the NIESR forecast suggests that the recovery will be slower for Wales. This will pose a significant challenge for the Welsh Government and will call for careful thought about how to speed up the recovery.”

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