U.K. Unemployment Claims Rise at Fastest Pace Since May 2009

U.K. unemployment claims increased the most in more than two years in July, adding pressure on Prime Minister David Cameron to ease the pace of budget cuts as the economic outlook worsens.

Jobless benefit claims rose 37,100 from June to 1.56 million, the biggest gain since May 2009, the Office for National Statistics said today in London. The median of 23 forecasts in a Bloomberg News survey was for an increase of 20,000. Unemployment measured by International Labour Organization methods climbed 38,000 to 2.49 million people in the second quarter.

The figures suggest the labor market is weakening as the euro-area debt crisis hampers growth and government spending cuts bite. Cameron needs job creation at private companies to offset the loss of more than 300,000 public-sector posts in the toughest austerity program since World War II.

“There’s a global shock and the U.K. has been buffeted by that,” said Amit Kara, an economist at UBS AG in London. “We should continue to expect weak employment data. It does open the debate about a Plan B” for the economy.

The pound was 0.3 percent higher on the day at $1.6507 as of 2:17 p.m. in London. It fell as much as 0.4 percent after minutes released by the Bank of England showed policy makers Spencer Dale and Martin Weale ended their push for an increase in interest rates this month. The nine-member Monetary Policy Committee voted unanimously to hold the key rate at a record-low 0.5 percent.

Benefit Rules

The claimant-count rate rose to 4.9 percent in July, the highest since February 2010, from 4.8 percent in June. Jobless claims continue to be boosted by changes to benefit rules affecting women, though this does not explain all of the increase, the statistics office said. Claims rose 31,300 in June rather than the 24,500 previously reported.

Based on ILO methods, the unemployment rate rose to 7.9 percent in the quarter through June from 7.7 percent in the previous three months. That compares with 9.9 percent in the euro region, 9.1 percent in the U.S. and 4.6 percent in Japan, the statistics office said.

The number of 16-24-year-olds seeking work increased 15,000 to 949,000 in the second quarter, a rate of 20.2 percent. People working part-time because they could not find a full-time job increased by 83,000 to 1.26 million, the highest figure since comparable record began in 1992. In the three months through July, job vacancies in the economy dropped 22,000 to 449,000.

Income Squeeze

Annual wage growth accelerated to 2.6 percent in the second quarter from 2.3 percent in the period through May, reflecting private-sector bonuses. Salary increases excluding bonuses were little changed at 2.2 percent, underlining the squeeze on household incomes at a time when retail-price inflation is 5 percent.

Economic growth in Britain slowed to 0.2 percent in the second quarter and recent surveys suggest companies are scaling backing hiring plans, raising doubts about whether the private sector will be able to make up for public-sector job losses.

The slowdown is fuelling the debate over the pace of deficit reduction, with the opposition Labour Party saying the squeeze is going ahead too quickly and damaging consumer confidence.

“This is a very worrying set of figures,” Stephen Timms, Labour’s employment spokesman, said in an e-mailed statement. “The government is being far too complacent about getting people back to work.”

The government argues its plan to eliminate the structural deficit by 2015 is shielding Britain from the crisis engulfing the euro region. Today, Chancellor of the Exchequer George Osborne named the locations for 11 new low-tax enterprise zones, part of an effort to stimulate growth.

Speaking to Sky News television, Osborne said that while last month’s jump in unemployment is “disappointing,” a 25,000 increase in employment in the second quarter showed jobs are being created.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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