U.K. Jobless Claims Fall More Than Forecast on Hiring Surge

U.K. jobless claims fell more than twice as much as forecast in January as job creation surged, showing the resilience of the labor market amid a fragile economic recovery.

Unemployment claims fell 12,500 from December to 1.54 million, the Office for National Statistics said today in London. The median forecast of 24 economists in a Bloomberg survey was for a drop of 5,500. In the quarter through December, unemployment as measured by International Labour Organisation methods dropped 14,000 to 2.5 million. Employment jumped 154,000, the biggest gain since the middle of last year.

The figures will provide a boost for Prime Minister David Cameron, with the economy on the brink of a triple-dip recession and his Conservative Party trailing behind the Labour opposition in opinion polls. Labour says Cameron is to blame for holding back growth by trying to cut the budget deficit too quickly.

“It has been a bright spot among the data in the last year or so,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. “The employment surveys have been on an improving trend, suggesting there’s further gains in employment ahead. There’s reasons to expect this strong trend to continue over the next few months but over a longer horizon we’re skeptical it can be maintained.”

A separate report published today showed that three Bank of England policy makers including Governor Mervyn King favored adding stimulus to the economy this month. Only one, David Miles, had called for extra asset purchases in January.

Job Creation

The pound fell against the dollar after the reports and was trading at $1.5348 as of 9:40 a.m in London, down 0.5 percent on the day.

The number of people in work climbed to 29.7 million during the fourth quarter, the most since records began in 1971, the ONS said. Full-time work accounted for all of the increase. The ILO unemployment rate was 7.8 percent compared with 7.7 percent in the three months through November. Britain’s jobless rate compares with 7.9 percent in the U.S. and 11.7 percent in the euro region. Youth unemployment rose, while there was a drop in the number of people out of work for more than a year.

Jobless claims have fallen for three consecutive months. In December, the dropped 15,800 instead of the 12,100 initially estimated. The claims rate stayed at 4.7 percent in January.

Labor Slowdown

There were some signs of a slowdown in the labor market, with figures prepared on an experimental basis showing unemployment rose by 87,000 in December from November.

Economists and policy makers have struggled to explain the strength of the labor market at a time when growth is weak. Possible explanations include an increase in self-employment and part-time work and downward pressure on wages, which is reducing the pressure on companies to cut costs.

Weekly pay growth slowed to 1.4 percent in the three months through December from 1.5 percent between September and November, while growth excluding bonuses slowed to 1.3 percent from 1.4 percent. Regular pay growth was the lowest rate since June 2010. Inflation stands at 2.7 percent, underlining the squeeze on personal incomes.

Britain’s economy shrank 0.3 percent in the fourth quarter of 2012. While an unexpected drop in retail sales in January increased the risk of another contraction in the current quarter, the median forecast of a Bloomberg survey published on Feb. 15 suggests the economy will expand 0.2 percent and by 0.3 percent in the three months through June.

‘Difficult News’

King said last week that Britain will see “slow and sustained” recovery though above-target inflation will continue to squeeze household incomes.

“There is a lot of difficult news in the economy at the moment,” Deputy Prime Minister Nick Clegg said on his weekly phone-in program on LBC radio after the figures were released. “At least unemployment is coming down.”

Virgin Media Inc., the U.K. cable television company that’s being bought by Liberty Global Inc., on Feb. 14 announced 400 new jobs to meet demand for the TiVo TV system and broadband products.

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