The year to come will be another good one for job creation, but the overall economic outlook hinges on the crucial winter pay round that is now upon us, according to Dr John Philpott, chief economist at the Chartered Institute of Personnel and Development (CIPD).

According to Dr Philpott, a failure on the part of employers to maintain pay restraint could push interest rates above 5%, triggering a dip in demand for labour and an increase in unemployment over and above the recent, relatively benign, supply driven increases.

His analysis is contained within the CIPD’s Barometer of HR Trends and Prospects 2007, an annual review of the CIPD’s extensive survey and research data for the year just gone, and outlook for the labour market in the year ahead.

Dr Philpott, author of the review, comments: “The economic outlook for 2007 is on balance positive. Fear of continued above target consumer price inflation should start to ease as winter turns to spring – by which time the weight of opinion about the prospects for economic growth will probably grow more pessimistic, with steadily creeping unemployment at home, combined with the global knock-on effects of a dip in the United States economy, leading to talk of a possible cut in interest rates.

“Assuming interest rates do not rise above 5% the CIPD estimates that there will be a net increase in total UK employment of 195,000 in the year to December 2007. This is slightly less than enjoyed in 2006, primarily as a result of reduced hiring and job cuts in the public sector plus greater efforts to curb labour costs in commercial organisations.”