Jobless claims fall to lowest since mid-2011

LONDON Wed Jan 23, 2013 11:00am GMT

A woman passes a recruitment centre in London December 14, 2011. REUTERS/Luke MacGregor

A woman passes a recruitment centre in London December 14, 2011.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - Unemployment fell for the 10th quarter running at the end of last year and jobless claims hit their lowest since mid-2011 in December, a rare bright spot as the economy flirts with another recession.

The falls, which follow other numbers that have suggested the economy shrank again at the end of 2012, strengthen the case for the Bank of England to hold fire on any further bond-buying to bolster growth.

Separately, minutes from the bank's policy meeting earlier this month revealed growing doubts about the case for further monetary stimulus after it completed its last bond purchases in October.

Gilts fell in response to the two releases, which also helped sterling higher.

"Both unemployment and jobs creation are completely at odds with the weakness (in) much of the real economy data that are being published," said Investec economist Philip Shaw.

"The bottom line is that a robustly performing labour market is good for confidence and good for public finances."

The Office for National Statistics said the number of people claiming unemployment benefit fell by 12,100 last month, confounding analysts' expectations for a flat reading. The claimant count was 1.557 million - the lowest since June 2011.

The number of people without a job on the wider ILO measure also dropped by 37,000 in the three months to November, to 2.490 million - the lowest since March-May 2011.

Strong private sector job creation has been one of the few recent positives for Britain's economy, which is struggling to avoid its third technical recession since 2008.

The number of people in work hit 29.681 million in the three months to November, the highest since records began in 1971.

The ILO jobless rate also ticked down to 7.7 percent, compared with forecasts for a steady reading of 7.8 percent.

Economists and policymakers were already puzzled by the performance of the labour market at a time when the government is cutting public sector jobs and a raft of major companies have slashed jobs.

Airline Flybe was one of the latest to announce it was cutting 10 percent of its UK workforce on Wednesday, while London's biggest banks continue to cut back heavily.

The latest official data follows surveys of purchasing managers that showed a fall in employment last month both in Britain's factories and service firms, as well as another poll pointing to slower growth in recruitment.

Annalisa Piazza of Newedge Strategy noted that a slowdown in nominal growth of earnings - which have been falling steadily in real terms - was evidence that the underlying picture may be weaker than the employment figures suggest.

"Despite the relative strength of the labour market, earnings growth continued to moderate," she said. "This is a clear sign of moderate negotiation power from employees that feel the pressure of earnings growing far less than inflation."

The ONS said average weekly earnings growth including bonuses slowed to 1.5 percent in the three months through November, in line with forecasts. Excluding bonuses, pay grew by 1.4 percent, also as expected.

Minutes of the Bank of England's January 10 meeting showed Monetary Policy Committee member David Miles maintained his vote for a modest increase in bond purchases to 400 billion pounds but that others had become more certain this was not necessary. The Bank has bought 375 billion pounds of gilts with new money.

The past month's economic developments had been "modestly positive", the minutes said.

"While these developments had not substantially altered the balance of risks ... they had strengthened the belief of some (MPC) members that no further asset purchases were required at the current juncture," the minutes said.

In a speech late on Tuesday, Governor Mervyn King said the central bank could restart asset purchases if needed, but that they were not a panacea that would solve Britain's underlying growth problem.

(Editing by Catherine Evans)

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