U.K. Unemployment Extends Decline in Sign of Stabilization

U.K. Unemployment Unexpectedly Falls in Sign of Stabilization
Job advertisments are seen at a recruitment day run by New Horizons at the Queen Elizabeth II conference centre in London. Photographer: Simon Dawson/Bloomberg

U.K. jobless claims fell for a second month in April and a wider measure of unemployment dropped in the first quarter, providing further evidence of stability in the labor market.

Jobless-benefit claims fell by 13,700 from March, the biggest drop since July 2010, to 1.59 million, the Office for National Statistics said today in London. The median forecast of 24 economists in a Bloomberg News survey was for a gain of 5,000. Unemployment as measured by International Labour Organization methods fell to 8.2 percent in the first quarter from 8.3 percent in the three months through February.

The figures provide a boost for Prime Minister David Cameron, with the economy in recession and his approval ratings at all-time lows. Employment rose 105,000 in the first quarter, the most for a year. Economists say the deepening euro-region crisis may push up unemployment this year and the Bank of England today cut its growth forecasts.

“The figures could get worse,” said Vicky Redwood, an economist at Capital Economics Ltd. in London. “The return to recession will knock business confidence and prompt job cuts. While private sector employment is rising at the moment, overall the picture looks weak.”

The pound fell against the dollar and was trading at $1.5924 as of 12:13 p.m. in London, down 0.4 percent on the day. The 10-year gilt yield fell 4 basis points to 1.85 percent. It earlier fell to a record 1.821 percent.

Market Tension

The Bank of England published its quarterly growth and inflation outlook today against a backdrop of heightened market tensions as Greece faces new elections that may determine whether it stays in the euro area.

Governor Mervyn King warned of the risk of a “storm” coming from the 17-nation currency union, where only Germany prevented a return to recession in the first quarter, and said the outlook for U.K. growth is weaker than the bank predicted in February.

In the three months through March, ILO unemployment fell 45,000, the biggest fall since the three months ended April last year, to 2.63 million people. The drop in jobless claims last month followed a 5,400 decline in March, which was revised from a previously estimated 3,600 increase. It marked the first back-to-back fall since late 2010.

Part-Time Work

Still, a third of all unemployed people had been out of work for more than a year in the first quarter. In addition, the increase in employment was entirely driven by an 118,000 gain in part-time work, suggesting employers remain cautious about hiring. The number of people working part-time because they could not find a full-time job climbed to a record 1.42 million.

“There are still too many people in part-time work who want to work full time, and still too many people in long-term unemployment,” Cameron told lawmakers during his weekly question-and-answer session in Parliament today. “We’re not remotely complacent.”

Concerns about the economy and criticism that the government is out of touch with ordinary voters have taken their toll on the two-year-old coalition of Conservatives and Liberal Democrats, with both parties losing seats to the Labour opposition in local-council elections this month.

An Ipsos MORI poll yesterday showed Labour leading the Conservatives by 43 percent to 33 percent and the approval ratings of both Cameron and his Liberal Democrat deputy Nick Clegg at record lows. On the economy, voters no longer see the Tories as the best party, the survey of 1,006 adults taken May 12-14 showed.

Hit Hard

Britain was hit harder than most developed nations by the financial crisis and has been slow to recover, with output in the first quarter still 4 percent below its pre-recession peak in early 2008.

The country’s 8.2 percent jobless rate compares with 8.1 pecent in the U.S., though it is well below the 10.9 percent in the euro region, where property busts in Spain and Ireland shattered the labor-intensive house-building industry.

It is also below the peaks reached after recessions in the early 1980s and early 1990s, when unemployment climbed above 10 percent. That suggests firms have hoarded workers, leaving scope for a renewed round of job shedding if the recovery proves weaker than anticipated.

Underlining the squeeze on household budgets that is weighing in growth, annual pay growth slowed to 0.6 percent in the first quarter, the lowest since 2009, today’s figures showed. Pay growth less bonuses was unchanged at 1.6 percent. Inflation accelerated to 3.5 percent in March.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE