THE ECONOMY: HOW BAD WILL IT GET A SPECIAL REPORT BY WESTMINSTER

0 Comments | Sunday Herald, The, Jun 8, 2008 | by JAMES CUSICK

FOOD

RISING energy prices and the increased cost of raw materials, when fed through any economy, result in consumer pain. But the sharpest and most regularly felt sense that inflation is biting comes from food prices.

The reality behind the everyday cost of items in UK supermarkets is that global food prices are rising. If this is painful to bear in Britain, it's tougher elsewhere.

Food accounts for 10per cent of the UK consumer index. In rural village in places like India, food can account for 80per cent of family income.

There is a range of culprits. The switch from food crops to bio- fuels means this year a third of the US maize crop will be turned into fuel. The super-hike in oil prices is also driving up food prices in the direct relationship food has with higher transport costs, fuel for farm machinery and the fertiliser extracted from oil.

Global food prices have risen on average 40per cent over the past 12 months. In the UK, that has meant food bills rising at their fastest rate since 1991, with food and fuel bills now meaning the average UK family having to find GBP1500 extra a year just to stand still.

UNEMPLOYMENT

EMPLOYERS in the UK are said be in a 'wait-and-see' state.

Despite the deepening forecast of gloom that exists elsewhere in the economy, there has been no evidence the downturn has yet triggered a climate where job cuts are a reflex to expectations of a coming recession.

Despite unemployment rising by 14,000 to 1.6 million in the three months to March of this year, and the number of people claiming Jobseeker's allowance rising by 7200 to just over 806,000, the overall unemployment rate remains at 5.2per cent, down 0.3per cent on last year.

Although average earnings rose by 4per cent in the year to March, indicating the dilemma facing the Bank of England as it tries to boost growth and keep inflation under control, what will please the government most is that numbers in employment in the UK are continuing to grow. The work and pensions secretary, James Purnell, said the numbers in work showed the UK economy being well placed to resist global economic pressures.

Purnell's optimism, however, comes with a caveat: there is no jobs meltdown, but nothing is going to stand still for the next two years and further falls in confidence and the spiralling oil price might yet see Britain's labour market hit hard.