U.K. Jobless Rate Hits Nine-Month Low, Defying Recession

U.K. Unemployment Hits 9-Month Low as Labor Market Defies Slump
A job seeker uses the phone to check for vacancies while at a job centre in London. Photographer: Chris Ratcliffe/Bloomberg

U.K. unemployment fell to a nine-month low in the quarter through May as the London Olympics helped to create jobs, underlining the resilience of the labor market in the face of a recession and Europe’s debt crisis.

The jobless rate based on International Labor Organization methods fell to 8.1 percent from 8.2 percent in the period through April, the Office for National Statistics said today in London. Jobless-benefit claims rose 6,100 in June. The increase, though larger than the 5,000 median forecast in a Bloomberg News Survey, was inflated by a benefit-rule change that took effect May 21.

The strength of the labor market is providing a boost for Prime Minister David Cameron as his government axes hundreds of thousands of state jobs to help cut the budget deficit and struggles to lift the economy out of its second recession since 2009.

“The big question is can the labor market remain resilient given the economy’s ongoing weakness and the current very worrying and uncertain outlook,” said Howard Archer, an economist at IHS Global Insight in London. “In the very near term, the staging of the Olympics is likely to help matters further. However, further out the jobs outlook seems more problematic.”

The pound extended declines against the dollar after minutes showed Bank of England policy makers considered the case for an interest-rate cut. Sterling was trading at $1.5609 as of 1:20 p.m. in London, down 0.3 percent on the day.

Stimulus Vote

The Monetary Policy Committee voted 7-2 to increase quantitative easing by 50 billion pounds ($78 billion) to 375 billion pounds, the minutes showed. Chief Economist Spencer Dale and Ben Broadbent dissented in favor of no change to the asset-purchase target.

The labor-market figures suggest firms are hoarding workers, leaving scope for a renewed round of job shedding if the economy fails to improve. Another possible explanation, say economists, is that lost jobs are being replaced by new ones with lower levels of pay and productivity.

ILO unemployment fell 65,000 to 2.58 million in the three months through May, the lowest level since June to August last year. The 8.1 percent jobless rate compares with 11.1 percent in the euro region, 8.2 percent in the U.S. and 4.4 percent in Japan.

It is also below the peaks reached after recessions in the early 1980s and early 1990s, when unemployment climbed above 10 percent.

Olympics Boost

The number of people in work climbed 181,000 to 29.4 million, the highest since September-November 2008, with full-time work accounting for three-quarters of the increase. London accounted for 61,000 of the gain, partly reflecting hiring for the Olympic Games that open on July 27. London also posted the biggest drop in unemployment.

The rise in the number of people claiming jobless benefits last month left the claimant-count rate at 4.9 percent. Claims rose 6,900 in May instead of the 8,100 rise initially reported. June was affected by a rule change that restricted eligibility for lone-parent income support, forcing more people onto Jobseeker’s Allowance, the benefit on which the claims data are based.

Long-term unemployment increased, with those out of work for more than two years up by 18,000 since February to 441,000, the most since 1997. The number without work for more than a year rose by 3,000 to 885,000, a third of the total. Unemployment among 16-24-year-olds fell 10,000 to 1.02 million. The number of vacancies increased by 10,000 in the quarter through June to 471,000.

‘Encouraging’ News

Employment Minister Chris Grayling welcomed the figures as he visited a postal delivery center in central London opened by TNT Post UK. “This is an encouraging set of figures in what is still an incredibly difficult economic climate,” he said.

The opposition Labour Party said the government is not doing enough to get people back into work.

“The headline fall in unemployment is a welcome respite in a blizzard of bad economic news, but it’s alarming that many regions in Britain saw unemployment continue to spiral up, the number of young people on the dole long-term has now quadrupled in a year and long-term unemployment rose sharply again,” said Liam Byrne, Labour’s pensions spokesman.

Today’s report showed that pay growth quickened to 1.5 percent in the three months through May from 1.4 percent in the period through April. Excluding bonuses it was unchanged at 1.8 percent. The figures underscore the squeeze on household budgets at a time when inflation, though slowing, is running at 2.4 percent.

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