British unemployment rises

The number of Britons out of work rose by its most in eight months in the three months to November, official data showed today, boding ill for 2011, when public-sector job cuts start in earnest.

The figures suggest that the labour market remains in a weak state a year into the recovery and economists expect unemployment to rise in 2011, when the government starts a programme of spending cuts that will cost 330,000 public sector jobs over the next four years.

"The bigger picture is it's going to take a long time for the unemployment rate to come down because we're still operating well below the level that we were a couple of years ago in terms of output," said George Buckley, economist at Deutsche Bank.

Wage growth also remained in check, offering support to the Bank of England's assertion that high inflation will not feed into pay settlements, giving it an option to hold off raising interest rates for now.

Financial markets showed little reaction to an unexpected fall in the number of people claiming jobless benefits in December, a measure that is more timely than the rest of the more internationally-comparable jobs data.

The Office for National Statistics said the number of people out of work on the ILO measure rose by 49,000 to 2.498 million in the three months to November - the biggest increase since March 2010. However, this was not enough to lift November's jobless rate from the 7.9 per cent in the three months to October.

The rate of claimant count unemployment held steady at 4.5 per cent in December, despite an unexpected fall of 4,100 in the number of people claiming jobless benefits.

British unemployment rose relatively little during its worst recession since World War Two, giving limited scope for a strong rebound as the economy recovers and demand improves.

This is partly why wage growth has also failed to pick up significantly, despite surging consumer price inflation, which hit an eight-month high in December.

Average earnings growth including bonuses held at an annual rate of 2.1 per cent in the three months to November, below forecasts for a reading of 2.2 per cent and after a downwardly revised 2.1 per cent in the three months to October.

Pay growth is less than half the rate of Retail Price Inflation, which is used as the benchmark for most pay deals, and well below Consumer Price Inflation, which has been above the BoE's 2 percent target for most of the past five years.

"We expect wage growth will remain muted due to workers' weak bargaining position, given high and likely-to-rise unemployment," said Howard Archer, economist at IHS Global Insight.

"This is the key factor underpinning our belief that the BoE may yet hold off from raising interest rates until the fourth quarter."

Excluding bonuses, the rate of pay growth was also steady at 2.3 per cent in the three months to November. However, the rate for November alone picked up to 2.4 per cent, its highest since February 2009.

However, some economists said it was too early for the BoE to sound the all-clear on wage growth, as a lot of wage settlements are reached early in the New Year.

"The biggest period for wage claims is in January and April, so at the start of next month we might have a better picture as to what's been happening to settlement claims," said Deutsche Bank's Buckley.

Reuters