U.K. Unemployment Declines as Payrolls Surge to Record

U.K. jobless claims unexpectedly fell and payrolls rose to a record high as the London Olympics helped boost hiring.

Jobless-benefit claims fell 4,000 to 1.57 million in September, the Office for National Statistics said today in London. The number of people in work surged 212,000 to 29.6 million in the quarter through August, the highest since records began in 1971. Separately, minutes of the Bank of England’s policy meeting this month showed that officials are divided on the need for more stimulus for the economy.

The labor-market strength provides a boost for Prime Minister David Cameron and deepens what the Bank of England describes as a “productivity puzzle” as the economy continues to create jobs despite Britain’s return to recession at the end of last year. That may deepen divisions among Bank of England policy makers assessing the outlook for inflation and growth.

“Yet another strong set of labor-market figures, which on one hand is encouraging, but on the other makes the so-called productivity puzzle even more baffling,” said Nida Ali, an economist at the Ernst & Young ITEM Club in London. “It’s likely that there will be some form of payback in the months ahead.”

Economists had forecast no change to September jobless claims, according to the median of 27 estimates in a Bloomberg News survey. The decline in claims was the third consecutive drop and it left the claimant-count rate at 4.8 percent. The June-August jobless rate measured by International Labor Organization methods declined to 7.9 percent, the lowest in more than a year, from 8.1 percent.

Part-Time Surge

The surge in payrolls was led by part-time hiring. While the number of people in full-time employment rose 88,000, part- time employment jumped 125,000. James Ashley, an economist at RBC Capital Markets in London, said it’s “possible that some of the July/August figures might have been flattered slightly by an increase in short-term Olympics-related jobs.”

The Bank of England minutes said that policy makers have “differences of view” on the outlook. The central bank’s current stimulus round ends next month, leaving officials facing a decision over whether to expand quantitative easing again.

“Some members felt that there was considerable scope for asset purchases,” the central bank said. “Other members, while acknowledging that asset purchases had the scope to lower long- term yields further, questioned the magnitude of the impact that lower long-term yields on corporate debt and equity would have on the broader economy.”

The pound rose against the dollar and was at $1.6166 as of 12:51 p.m. in London, up 0.3 percent on the day.

London Jobs

The labor-market report also showed that ILO unemployment fell 50,000 to 2.53 million in the three months through August, the lowest since April-June 2011. London accounted for almost half of the jobs created in the period.

While unemployment among 16 to 24-year-olds fell by 62,000 between June and August to below 1 million, the number of people out of work for longer than a year climbed to stand at 35.5 percent of the national jobless total.

“There’s more we need to do to tackle youth unemployment, long-term unemployment, but the figures today should be welcomed,” Cameron said in his weekly question-and-answer session in the House of Commons today.

Economists have struggled to explain the strength of the labor market at a time when the economy is shrinking. Possible explanations include an increase in self-employment and part- time work and downward pressure on wages, which is helping companies to hold down labor costs. The ONS yesterday rejected suggestions that the economy may be doing better than the official figures suggest, saying “implausibly large” revisions to output would be needed to explain the conundrum.

Incomes Squeeze

Average earnings grew 1.7 percent, little changed from the 1.6 percent in the previous period. Excluding bonuses, pay growth was 2 percent, the highest since December. That compares with inflation of 2.2 percent, and the squeeze on incomes may intensify after some of Britain’s biggest power companies announced price increases starting next month.

GDP shrank 0.4 percent in the three months through June, the third straight quarter of contraction, and the economy is on course to contract this year for the first time since 2009. While a rebound is forecast in the third quarter after one-time disruptions in the prior three months, surveys suggest underlying growth is weak.

German Economy

Elsewhere in Europe, Germany’s government published new forecasts showing it expects the economy to grow 0.8 percent this year and 1 percent in 2013. It cut the 2013 projection from 1.6 percent.

Swiss investor confidence rose in October, the ZEW and Credit Suisse Group AG said in a separate report. Their index of investor and analyst expectations that aims to predict economic developments six months in advance increased to minus 28.9 from minus 34.9 in September.

The U.S. Commerce Department releases data later today that may show new-home construction rose in September to the highest level in four years.

Builders broke ground on 770,000 houses at an annual rate, up from 750,000 starts in August and the most since October 2008, according to the median estimate of 80 economists surveyed by Bloomberg. Permits for new projects also probably increased.

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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