Jobless rise stokes growth fears

LONDON Wed Sep 14, 2011 1:00pm 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) - Britain's unemployment rate rose at its fastest pace in two years in the three months to July and one of its biggest retailers saw a large fall in first-half profit, underlining the fraught economic outlook and raising pressure on the government to act to boost growth.

Official figures showed record public sector job losses fuelled the rise. The main opposition Labour Party accused the government of choking growth through deep spending cuts aimed at wiping out a record peacetime budget deficit.

The coalition government brushed aside calls to change its austerity drive but said it would support dozens of major infrastructure projects to support growth.

"These unemployment figures are disappointing," Prime Minister David Cameron told parliament. "It is right that we get on top of our debts and our deficits, and today of all days shows the danger of getting into a position other European countries are in."

With public finances so strained, extra help for Britain's economy would have to come from the Bank of England in the form of a second round of asset purchases and a decision to keep interest rates at their record low of 0.5 percent.

The economy has barely grown since last September, and the sovereign debt crisis in the euro zone, its biggest trading partner, has added to worries that the UK could slip back into recession.

Ministers say that failing to cut Britain's deficit could lead to the sort of crisis seen in Greece and other highly indebted European countries.

Labour, which argues that the cuts are too big and are taking place too quickly, said it was a "day of misery on Britain's jobs front."

"Today we have the clearest and starkest evidence yet that the government's plan for growth is hurting not helping Britain," said Liam Byrne, Labour work and pensions spokesman.

Brendan Barber, head of the Trades Union Congress, which represents 58 unions with more than 6 million members, said the jobless figures were "terrible."

"They are further evidence that the recovery has been choked off by a self-defeating rush to austerity," he said.

JOBLESS RISE

The Office for National Statistics said claimant count unemployment rose for the sixth month in a row in August. The climb of 20,300 was smaller than July's 33,700 increase and below forecasts for a jump of 35,000, but continued a rising trend since February.

On the wider International Labour Organisation (ILO) measure, which includes people looking for work, the jobless total rose by 80,000 to 2.51 million in the quarter to July, the biggest quarterly hike since August 2009. The jobless rate came in as forecast at 7.9 percent.

The number of people in employment also fell by 69,000 in the three months to July, the biggest drop since March 2010.

The ONS said the jobless rise and drop in employment were partly driven by the biggest drop in the public sector workforce since records began more than a decade ago.

Public sector employment tumbled by 111,000 between April and June to 6.037 million.

Chancellor George Osborne hopes the private sector will fill the gap left by public cuts. However, corporate results on Wednesday from one of Britain's biggest retail chains highlighted the headwinds facing the economy.

John Lewis, often seen as a barometer for UK retailers, reported an 18 percent drop in first-half profit, hit by discounting at its department stores and a step up in investment, and it predicted tough trading conditions into 2012.

Many Britons are cutting back on spending in the face of higher prices, muted wages growth and government austerity.

A survey last week showed British like-for-like retail sales fell 0.6 percent year-on-year in August.

The rise in unemployment supported views that the Bank of England would soon pump more money into the economy to restart the recovery.

Bank policymaker Adam Posen said on Tuesday that the central bank should start with an immediate 50 billion pounds purchase of UK government bonds or risk an even more bleak economic outlook.

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