The UK Knack Group would like to
provide some insight into how interest rates affects employment levels. The
association between the two is very easy to understand.



A larger-than-expected decrease in the monthly employment rate causes interest
rates to increase.



More employed people are putting more money into circulation. An increase in
available cash means there are more pounds chasing the same amount of goods as
were available the previous month.



Employers like The UK Knack Group require time to ramp up
operations to meet the increased demand. In order to employ additional staff, companies may have to borrow
money over the short term in order to meet payroll expenses or acquire more raw
materials. In the case of UK Knack Group, people are its product and this
effect is more easily seen.



Lenders experience an increase in loan requests. In this case, borrowers like
The UK Knack Group are increasing demand on available money which results in
higher interest rates charged by the banks and other lenders.



At the same time, central government lending agencies will raise their lending
rates after analysing the bond markets, a move calculated to forestall
inflationary forces. Banks borrow from the central lending agencies at a higher
rate of interest and pass on the additional expense to their own borrowers such
as UK Knack Group.



However, lower unemployment may affect interest rates more indirectly.
Companies ramping up operations are often
short of employees for a time who demand higher salaries.



Higher wages may drive prices higher. Again, more money is chasing fewer goods.
Inflation may result, depressing the stock market.



Companies with lower cash flows coming in may need to borrow. Once again, banks
begin lending at a higher interest rate to meeting the higher demand for loans.



When unemployment rates are around the “natural rate” of around 5.5% as
determined by economists, interest rates remain stable, according to UK Knack
Group information. This is called “equilibrium.” When that rate decreases,
interest rates go up. Similarly, when unemployment increases, interest rates go
down. They are inversely related, in other words.



UK Knack Group gives an example of this process. When the unemployment rate is
above 5.5%, those who are out of work cut back on expenditures, lowering demand
for goods and services. For instance, a family with an unemployed salary earner is less likely to dine out at a
restaurant, which in turn requires fewer staff and food for preparation.



Consequently, farming and food-distribution families cut their expenditures,
further depressing demand. There are fewer requirements for goods all along the
supply chain, The UK Knack Group explains.



UK Knack Group provides an
example of a economic turnaround as well. An office experiences a sudden
increase in demand for its services and recalls some staff.



These staff now have higher expenses related to going to work every day such as
commuting costs, updating career attire, and buying meals outside the home.
Transportation companies, shops,and restaurants experience a higher level of
business and call back unemployed workers.



At each level, more staff put more money
into circulation and everyone wants to buy something, often at a higher price
than before. Credit cards, a form of borrowing, are used to pay for goods and
services.



Restaurants and shops may borrow money to meet short-term current expenses.
Their suppliers extend credit for a few weeks, but they must add a certain
percentage as interest. Suddenly, everyone is chasing money, and increased
demand, and the cost of borrowing money goes up as well.



The Knack Group UK hopes these illustrations make understanding the interplay
between unemployment and interest rates easier to understand.

About
Author:

The UK Knack Group provide Executive Search and Selection and
Headhunting services to all sectors of Industry, both private and public,
across the UK. Our passion is to match the right candidate to the right role in
the timeliest fashion whilst recognising that the candidate must also be the
correct “fit” with the management team.