Signs of recovery as jobless rate falls

A man is reflected as he looks into the window of a job centre in central London February 16, 2011.

LONDON (Reuters) - The rate of unemployment fell unexpectedly in the three months to February, and employment rose, official data showed on Wednesday, in a sign that companies are feeling more confident about hiring.

The figures will come as welcome news to the government, which is banking on the private sector to create jobs and help fill the gap created by public spending cuts. However, weaker wage growth spelled bad news for squeezed households.

"The UK labour market recovery is looking a bit healthier," said Vicky Redwood of Capital Economics. "But the continued falls in real pay do not bode well for consumer spending."

The Office for National Statistics said the number of people without a job on the broad ILO measure fell by 17,000 in the three months to February to 2.480 million. That took the jobless rate down to 7.8 percent, below forecasts for a reading of 8.0 percent. It was the first fall in the jobless level and rate since last September.

In a further sign of improvement in the labour market, the number of people in employment rose by 143,000 in the three months to February -- the biggest increase since the three months to September 2010.

The ONS said the increase was driven by the biggest rise in the number of people in full-time employment since May 2007.

The overall positive tone to the data were slightly marred by a small rise of 700 in the more timely claimant count measure of unemployment for March.

And wage growth slowed, with average weekly earnings growth including bonuses easing to 2.0 percent from 2.3 percent in the three months to January and well below forecasts for a rise of 2.6 percent.

As such, the figures did little to alter expectations that the Bank of England will not rush to raise interest rates from their record low 0.5 percent. A surprise slowdown in inflation last month all but wiped out expectations of any tightening in May and caused markets to doubt any move before August.