March 16, 2011 / 9:48 AM / in 8 years

Jobless hits highest since 1994 as budget looms

LONDON (Reuters) - The number of Britons out of work rose to its highest since 1994 in January, official data showed Wednesday, prompting calls from business and unions for measures to boost jobs in next week’s annual budget.

A woman enters an employment centre in Leicester, October 20, 2010. REUTERS/Darren Staples

Financial markets got a boost from figures showing unemployment benefit claims fell last month, but public attention focussed on record youth unemployment and the highest overall unemployment rate in 10 months.

The total number of unemployed rose by 27,000 to 2.529 million in the three months to January, a number last seen when Britain was emerging from recession in late 1994.

An unexpected 10,200 fall in the number of people claiming unemployment benefit in February offered only limited comfort, and wage growth remained well below the levels that would make the Bank of England want to raise interest rates.

“With the government’s austerity plan likely to result in further cuts in public sector jobs ... total unemployment is likely to increase to 2.65 million over the next 12-15 months before it starts declining,” said David Kern, chief economist for the British Chambers of Commerce (BCC).

Chancellor George Osborne has little scope for more spending to boost job creation or slow the pace of public sector cuts, if he wishes to stick to a five-year plan to largely eliminate Britain’s 11 percent budget deficit.

The BCC said that the government should use the budget to ease employment regulation, especially for smaller firms, while the Trades Union Congress said there should be more funding to help the unemployed get back to work.

“Today’s figures are shocking,” said TUC general secretary Brendan Barber. “While the fall in the numbers claiming the dole is welcome, the number of jobs available in the economy has also fallen, and there are over a million people in part-time work seeking permanent jobs.”

The total unemployment rate unexpectedly rose to 8.0 percent from 7.9 percent, only just below the 8.1 percent rate last seen in 1996.

The unemployment rate among 18-24 year olds seeking work increased to 18.3 percent, the highest since records began in 1992.

MIXED OUTLOOK

Unemployment rose less than in many industrialised economies during the financial crisis, and economists said Wednesday’s data offered a mixed picture at a time when the Bank is considering raising interest rates for the first time since 2007.

The 10,200 fall in February jobless claims was the biggest one-month decline since June, causing sterling to rise against the dollar.

“The jobless data remain mixed,” said Citi economist Michael Saunders. Sharp falls in public sector employment appeared to be being absorbed by stronger private sector hiring, giving an overall flat outlook for the labour market.

Many economists honed in on the wage data. While the headline rate of wage growth grew at an unexpectedly strong rate of 2.3 percent in the three months to January, much of this was due to stronger bonuses than a year ago.

Stripping this out, the rate of wage growth slowed to 2.2 percent from 2.3 percent — well below a rate of inflation currently double the Bank’s target at 4 percent.

“With the global economic situation looking ever more uncertain at the moment and significant concerns existing over the underlying strength of the UK economy ... ongoing muted wage growth reinforces the case for the Bank of England to hold off from raising interest rates in the near term at least,” said IHS Global Insight economist Howard Archer.

The economy unexpectedly contracted by 0.6 percent in the last three months of 2010, causing some Bank policymakers to worry that there was an underlying slowdown on top of obvious disruption caused by the coldest December in 100 years.

Three weeks ago money markets had pencilled in a May rate rise, but now August looks more likely — not least because of uncertainty about the impact on the global economy from Japan’s tsunami and ongoing nuclear crisis.

However, the BoE is likely to remain finely balanced, as three of the nine members of the Monetary Policy Committee voted for higher rates in February.

Editing by Patrick Graham

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