British unemployment grew for the eleventh consecutive month in December, according to official figures. The news, coupled with more benign data on rises in average earnings, raised hopes an early interest rate cut could be on the cards to help stimulate the British economy.
The number of people out of work in the UK leaped during the three months to the end of November by 111,000 to 1.53 million – its highest level in three years, according to the office for National Statistics (NS).
The jump takes the unemployment rate to a two-year high of 5 per cent, NS said.
Margaret Hodge, the Work Minister, conceded: “Recent figures have been erratic and this quarter’s are disappointing.”
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The claimant count, which represents those out of work and claiming benefit, also climbed for the 11th consecutive month, by 7,200 to 909,100.
The number of people classed as economically inactive, which includes those looking after a relative, students or people who have given up looking for a job, also increased. The figure rose by 25,000 on the quarter to 7.94 million, the highest total since records began in 1971.
Meanwhile, the number of UK job vacancies fell by 12,700 over the three months until the end of November.
NS also reported separate figures on wage settlements, which showed that average earnings growth fell by 0.2 per cent to 3.4 per cent in the year to November, compared with the previous month.
The figures will add weight to hopes of an early interest rate cut. Concerns over the inflationary impact of an early rate cut were eased yesterday with the release of official inflation figures.
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ONS said yesterday that the Consumer Price Index (CPI), the main domestic measure of inflation, had fallen for the third consecutive month to the Bank of England’s target of 2.0 per cent.
But dovish hopes that the Bank’s Monetary Policy Committee (MPC) might cut the base rate as early as February could prove optimistic.
The MPC may want to wait until the release of wage settlement figures for January, which are not due for publication until March, before making a final decision on a rate cut.
Howard Archer, chief UK and European economist for Global Insight, said: “The very modest earnings growth, coupled with a further increase in unemployment and an easing back in employment, significantly boost the case for a near-term interest rate cut.
“Indeed, following on from benign December consumer price inflation data, a February interest rate cut is looking more and more a distinct possibility.
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“However, given recent signs of stronger economic activity, we suspect that the Bank of England may prefer to hold fire until at least March, while it looks to see if recent evidence of firmer consumer spending is sustained and further monitors inflation developments.”
George Buckley at Deutsche Bank said: “Today’s figures look weak, and the sharper than expected rise in unemployment will not go unnoticed on the MPC; nor will the weakness in earnings growth, something that the Bank has been watching carefully for signs of a pick-up in inflation expectations.”
Although Mr Buckley said “the real judge” of inflationary risk would be the all-important January pay round, he added: “February’s MPC decision is shaping up to be an interesting one; perhaps the market should be pricing a greater chance of a move as soon even as next month.”