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Is it helpful to cut employment numbers to save costs in the short term?

Over the last few weeks we have focused on the UK economy and in particular the ever-growing number of unemployed in the UK. Company after company have been announcing job losses and cost cuts to try and stabilise their businesses in the short to medium term and reduce their costs as much as possible. However, is there a danger that cost-cutting in the short term could lead to reduced consumer expenditure which could again lead to more cost-cutting and a vicious circle?

This is an interesting angle on the short-term cost reductions we have seen in the UK across the vast majority of sectors. While many companies appear at this moment in time to have no choice but to cut their costs there is a feeling that if UK banks were able to support various operations for a short period then the very fact that more people would be in employment would see higher consumer spending and ultimately should see the UK economy recover quicker. This is a very controversial view but one which is attracting more and more economists and analysts in the UK. In many ways, short-term cost-cutting can lead to a self-fulfilling prophecy of reduced expenditure, more cost-cutting and yet lower expenditure.

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