UK jobless claims on the rise

UK unemployment claims last month rose at the fastest pace since January last year, underlining the fragility of the recovery as government spending cuts and accelerating inflation sap consumer confidence.

Jobless benefit claims increased by 12,400 from March to 1.47-million, the Office for National Statistics said yesterday in London. Unemployment measured by International Labour Organisation (ILO) methods fell by 36,000 to 2.46-million people in the quarter through March.

Prime Minister David Cameron is relying on private companies to create jobs as his government loses more than 300,000 public-sector posts to tackle the budget deficit. The economy stagnated in the six months to end-March and Bank of England policy makers yesterday warned that an interest-rate increase now could damp consumer spending.

"We think the unemployment rate will rise for the next 18 months," said Ross Walker, an economist at Royal Bank of Scotland Group in London. "The growth we’re getting is not particularly robust and you wouldn’t expect it to produce much job creation. In the medium term, there’s no need for an aggressive rate rise by the Bank of England."

The statistics office said the increase in the claimant count was partly driven by rule changes mainly affecting women that shifted recipients of lone-parent benefits on to the unemployment roll. The number of women claiming a job-seeker’s allowance rose by 9,300 last month.

Yesterday’s figures fuelled the political debate over the pace of deficit reduction after the German and French economies grew faster than the UK in the first quarter.

Bank of England policy makers voted 6-3 to keep rates on hold this month. The majority warned that tightening policy now could "adversely affect consumer confidence, leading to an exaggerated impact on both spending and firms’ perceptions of their desired productive capacity".

In parliament yesterday, Mr Cameron pointed to ILO-based figures for the first quarter as proof that the labour market was recovering. On this measure, employment rose 118,000 from the fourth quarter to 29.2-million, led by full-time jobs, and the jobless rate fell to 7.7% from 7.9%. "Those are the facts of what’s really happening in the real world rather than in Dinosaurland, which he still inhabits," Mr Cameron told opposition Labour Party MP Dennis Skinner when challenged over the government’s welfare cuts.

The increase in the number of people claiming jobless benefits last month put the claimant-count rate at 4.6% compared with 4.5% in March. Claims rose by 6,400 in March instead of the 700 increase initially reported. Bloomberg

Source:Scott Hamilton UK jobless claims on the rise Business Day, May 19, 2011

For text: http://www.businessday.co.za/articles/Content.aspx?id=143108

First published by the Business Day

FMF Policy Bulletin/ 24 May 2011