Aug. 17 (Bloomberg) -- U.K. jobless claims rose for a sixth month in July, extending the longest stretch of gains in more than 12 years, as slower consumer spending deterred hiring by retailers and manufacturers.

The number of people claiming unemployment benefit climbed by 2,800 from June to 866,000, the highest since April 2004, the Office for National Statistics said in London today. Jobless claims were expected to rise by 8,800, according to the median estimate in a Bloomberg survey of 31 economists. The jobless rate held at 2.8 percent, the highest since May 2004.

The Bank of England on Aug. 4 cut its benchmark interest rate for the first time in two years to underpin flagging economic growth. Record employment spurred 52 quarters of expansion and supported Prime Minister Tony Blair's successful bid for a third term in office in May. On Aug. 10 the central bank cut its 2005 growth forecast to 2 percent from 2.5 percent projected in May.

``We've seen weakness in the employment indicators,'' said Neville Hill, an economist at CSFB in London, before the report. The slowdown ``will justify the cut that has taken place.''

Consumer spending, which powers two-thirds of Europe's second-largest economy, is waning as the highest interest rates among the Group of Seven leading industrial nations sap a decade- long property boom. Policy makers cut the benchmark rate a quarter-point to 4.5 percent after growth slumped to 1.7 percent in the second quarter, the slowest annual pace in 12 years.

Littlewoods Plc, the retail group owned by the billionaire Barclay brothers, said in April it planned to cut about 3,200 jobs as it shuts its unprofitable Index catalogue stores. Marks & Spencer Group Plc, the U.K.'s largest clothing retailer, said it will shed as many as 1,000 office jobs over two years.

Job Losses

Countrywide Plc, Britain's largest real estate company, has shut 33 of its almost 1,000 branches and cut 500 employees since the first half of last year as falling house prices reduce earnings. On Aug. 11, it said first-half net income slid 84 percent from a year earlier, to 3.2 million pounds ($5.8 million.)

Manufacturers are also reducing staff as record oil prices increase costs. Factories shed 86,000 jobs in the quarter through June compared with a year earlier, leaving 3.2 million, the fewest since records began in 1978. MG Rover Group Ltd., Britain's last volume carmaker, collapsed on April 8, with the loss of 5,000 jobs.

Labor costs per unit of manufacturing output rose 0.6 percent in the three months though June, down from 1.2 percent in the prior three months. Productivity, or output per worker, rose 2.2 percent compared with a gain of 1.7 percent.

Interest Rates

The last time jobless claims grew consecutively for a longer period was in the 31 months through December 1992, when Conservative Prime Minister John Major was in power. The U.K. economy contracted for five straight quarters through September 1991.

Claims rose 7,100 in June rather than the 8,800 increase reported last month.

The chances of another interest-rate reduction receded yesterday after inflation accelerated to 2.3 percent in July, the fastest in at least eight years, as oil prices surged above $60 a barrel. Bank of England Governor Mervyn King last week said economic growth will accelerate to 3 percent by 2007 and inflation will still be above its 2 percent target.

Futures trading suggests investors are no longer banking on interest-rate reductions this year. The implied rate on the contract for December was at 4.45 percent late yesterday compared with 4.2 percent on July 7, the lowest this year.

According to International Labor Organization measures, unemployment in the three months through June was unchanged at 4.7 percent in the quarter through June, the second-lowest in the Group of Seven after Japan. The employment rate fell to 74.7 percent from 74.9 percent.

A stagnant labor market is keeping a lid on wages. Excluding bonuses, incomes grew 4 percent in the three months through June, the same as in the previous three months and the lowest since June 2003. Including bonuses, the rate accelerated to 4.2 percent from a seven-month low of 4.1 percent. The increases were in line with economists' expectations.

To contact the reporter on this story: Laura Humble in London lhumble1@bloomberg.net.

Last Updated: August 17, 2005 04:30 EDT