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What effect does rising unemployment have on an economy?

The effects of rising unemployment on the UK economy should not be underestimated as it will have significant consequences going forward. Not only does it place more pressure upon the benefit system, with more and more funding required, but it also reduces taxable income in the UK therefore reducing the overall pot from which the benefit system is funded.

Aside from purely financial implications, the ever growing number of unemployed in the UK could lead to significant disillusionment amongst those who have gone to college or other further education and still ended up on the dole. There will obviously be an impact upon spending within the economy as more and more people struggle to fund the "luxuries" of life. The knock-on effects will be reduced spending within the UK economy which will lead to cost-cutting, pricing pressure and ultimately more job losses.

History has shown it is very difficult and often very expensive to escape from this vicious circle of job cuts, cost cuts, job cuts, cost cuts, etc although the government cannot afford to sit back and let the situation deteriorate further. The fact that unemployment will continue to rise even when the UK economy turns is also a further worry for the authorities and will be uppermost in the minds of the likes of Gordon Brown and Alistair Darling.

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