Bloomberg News

U.K. Jobless Claims Rise; Slower Wage Growth Adds to Squeeze

June 15, 2011

(Updates with comment from economist in fourth paragraph, employment minister in 14th.)

June 15 (Bloomberg) -- U.K. jobless claims surged more than economists expected in May and wage growth slowed, pointing to a continued squeeze on households as inflation accelerates.

Jobless-benefit claims jumped 19,600 from April, when they rose a revised 16,900, the Office for National Statistics said today in London. The median forecast of 22 economists in a Bloomberg News survey was an increase of 6,500. Wage growth excluding bonuses slowed to 2 percent in the three months through April, the weakest since the quarter through August.

Based on a separate International Labor Organization measure, unemployment fell by 88,000 in the three months through April, the most since 2000, the statistics office said. While there are mixed signals from the labor market, inflation is outpacing wage growth, squeezing consumers whose confidence is also being undermined by concerns about government budget cuts.

“It’s not an exciting recovery and it’s unlikely to be given the lackluster consumer background,” said Philip Shaw, chief economist at Investec Securities in London. “In the short term people will still worry about their jobs. The average earnings show the extent to which household finances are being squeezed.”

The pound extended its decline against the dollar after the report and was trading at $1.6296 as of 10:21 a.m. in London, down 0.5 percent on the day. The yield on the 10-year gilt was little changed at 3.30 percent.

Inflation Pressure

The claimant-count rate stayed at 4.6 percent in May. The increase in the jobless claims was the biggest since July 2009. Part of the increase was due to rule changes mainly affecting women as recipients of lone-parent benefits are moved onto the jobless roll. The impact in May was less than in previous months, the statistics office said.

While data showed yesterday that inflation stayed at 4.5 percent in May, the highest since October 2008, price pressures are showing no signs of feeding through to wage settlements. Wage growth excluding bonuses eased from 2.1 percent in the first quarter. The Bank of England forecasts that consumer-price growth will accelerate to 5 percent in the coming months.

Wage increases including bonuses weakened to 1.8 percent from 2.4 percent, the least since the fourth quarter of 2010.

While a report from Nationwide Building Society today showed U.K. consumer confidence jumped the most in 5 1/2 years in May, it said “underlying” sentiment remains “cautious.”

Private Hiring

Based on ILO methods, the unemployment rate was 7.7 percent in the three months through April, down from 7.9 percent in the period through January. The jobless total stood at 2.43 million and the number of 16-24-year-olds seeking work fell by 79,000 to 895,000.

Employment rose by 80,000 to 29.2 million as private hiring more than made up for a 24,000 drop in public-sector employment in the period. Excluding the impact of workers hired for the 2011 census, the decline in government jobs would have been 39,000.

The decline in ILO unemployment is “encouraging, especially with private-sector employment more than offsetting the fall in public-sector employment,” said Hetal Mehta, an economist at Daiwa Capital Markets Europe Ltd. Still, “we have severe doubts as to whether this improvement will be sustainable given that the vast majority of public-sector job cuts are still to come.”

Employment Minister Chris Grayling said the figures showed signs of strength in the labor market.

‘More Than Compensating’

“At the moment the private sector is more than compensating for any losses in the public sector,” he told Sky News television. “We’ve always said the recovery will be choppy and there will be ups and downs. This big drop in youth unemployment and drop in headline unemployment has to be good news.”

Amazon.com Inc. said on May 25 will open a customer service center employing 900 people in Edinburgh in August, almost doubling the number of jobs the world’s largest online retailer is creating in Scotland this year. Southern Cross Healthcare Group Plc, the U.K.’s biggest nursing home operator, said on June 8 it plans to cut as many as 3,000 jobs as it seeks ways to reduce costs.

--With assistance from Harumi Ichikura in London Editors: Fergal O’Brien, Andrew Atkinson

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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