The number of people claiming jobless benefits last month rose at its fastest rate since the recession of the early 1990s, official data showed today, as the slump in the housing market and turmoil in financial markets took a firmer hold on the economy. The Office for National Statistics said the number of people claiming unemployment benefit rose by 20,100 in July, the sixth monthly rise in a row, taking the total claimant count to 864,700. Last month's increase was also revised upwards by another 4,500 people to 20,000. This was well ahead of City forecasts and the largest monthly increase since December 1992. As a result the jobless rate ticked up to 2.7%, the highest pace in a year. News that unemployment levels are rising adds to concerns that the UK is rapidly slipping into a sharp downturn. Unemployment figures are usually the last to show the impact of an economic downturn since employers only tend to start shedding labour when the economy becomes really weak. The Labour Force Survey - the broader, internationally recognised measure - showed a rise of 60,000 in the three months to June - the biggest increase since mid-2006. The fourth consecutive rise in the ILO figure took the unemployment rate to 5.4% from 5.2%. The number of vacancies in the economy fell by 47,000 over the quarter to 615,100 - the lowest number of vacancies for over a year-and-a-half - indicating that demand for labour is wilting. Around 126,000 people were made redundant in the three months to June, up by 14,000 from the quarter to March driven by losses by housebuilders, who are suffering from the weakening housing market. "It's fairly clear that the labour market is deteriorating at a rapid pace and I think it's going to continue to do so because of slower economic growth and concerns by companies that the downturn might actually be longer and more pronounced than they originally thought," said George Buckley, economist at Deutsche Bank. Better news for the government and policymakers came from the average earnings figure which was more subdued than expected. Wages, excluding bonuses for the three months to June, rose at an annual rate of 3.4%, the weakest amount for five years, suggesting that the slowing economy is keeping a lid on earnings growth. However, the Bank of England is concerned that wage growth may shoot up - pushing up inflation even further - after figures yesterday showed the retail price measure of inflation, on which pay deals are based, hit 5%. The labour market data was released shortly ahead of the Bank of England's quarterly inflation report. In it, the Bank warned that the UK faces a painful adjustment, but offered the prospect of an interest rate cut once inflation starts to fall sharply. Figures yesterday showed inflation hit a 16-year high of 4.4%, on track to reach 5% by the autumn, as expected by many in the City. Such a surge in inflation could prompt the Bank to raise borrowing costs to rein in price pressures at the cost of deepening the economic downturn which could push unemployment up even further. "With RPI inflation reaching 5% in July, an acceleration in pay growth cannot be ruled out. And even if it stays subdued, the MPC has plenty of other inflation concerns which are likely to keep rates on hold for another couple of months at least," said Vicky Redwood, economist at Capital Economics.Unemployment rise fastest since 1992
Wednesday, 13 August 2008
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