Unemployment jump adds to pressure on government

LONDON Wed Aug 17, 2011 2:44pm BST

A pedestrian walks past an employment centre in London August 17, 2011. REUTERS/Suzanne Plunkett

A pedestrian walks past an employment centre in London August 17, 2011.

Credit: Reuters/Suzanne Plunkett

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LONDON (Reuters) - The sharpest rise in jobless claims in over two years is adding pressure on the government to boost the faltering economy at a time when the country struggles to regain confidence after riots hit major cities.

The number of people claiming jobless benefit rose by 37,100 last month, the Office for National Statistics said on Wednesday, the largest jump since May 2009 and well above economists' forecast of a rise by 20,000.

Some of the rise was still due to a change in benefit rules, though this could not explain all of the increase, the ONS said.

The labour market has been surprisingly robust during the financial crisis and employment has risen despite a sluggish economic recovery.

However, surveys have indicated that firms are scaling back hiring plans, raising doubts about the ability of private companies to make up for public sector job losses caused by the government's spending cuts, aimed at erasing the budget deficit.

Chancellor George Osborne has firmly rejected all calls to slow his austerity drive, pledging to push on with supply side reforms to support businesses and job creation.

On Wednesday, the government announced 11 more low tax, light regulation enterprise zones which could create up to 30,000 jobs by the time of the next election due in 2015.

With room for more government spending limited, any boost for the economy is likely to come from the Bank of England, where more policymakers considered fresh asset purchases and all calls for higher rates were ditched.

CONFIDENCE

Rising unemployment is likely to further dent shaky consumer morale, already hit by high inflation, low wage rises and recent riots in major cities.

The ONS said the number of people without a job on the wider ILO measure rose by 38,000 in the three months to June to 2.494 million and the jobless rate unexpectedly rose to 7.9 percent, compared with forecasts for an unchanged reading of 7.7 percent.

"The labour market data is unambiguously bad," said Tom Vosa, economist at National Australia Bank.

Some of the rise in the second quarter could have been caused by factors such as supply-chain disruptions after the earthquake and tsunami in Japan, which was partly behind a slowdown in GDP growth to a meagre 0.2 percent.

"But if we don't see a reversal of that trend, we are looking at unemployment going up to 8-9 percent on the ILO measure by the end of next year," Vosa said.

Employment rose by only 25,000 in the three months to June, the slowest rise since the three months to December 2010 and the number of vacancies fell to the lowest level in nearly 2 years.

Average weekly earnings growth including bonuses rose 2.6 percent in the three months to June compared to last year, a faster rate than the 2.3 percent analysts had forecast. Excluding bonuses, however, pay only increased by 2.2 percent.

Wage increases remain well below inflation, which is running above 4 percent, providing little relief for households' squeezed budgets.

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