(Updates with comment from Bank of England Governor Mervyn King in seventh paragraph.)
Feb. 15 (Bloomberg) -- U.K. jobless claims rose more than economists forecast in January and unemployment held at the highest rate for 16 years in the fourth quarter as the economy contracted.
The number of people claiming jobless benefits rose by 6,900 to 1.6 million, the highest since January 2010, the Office for National Statistics said today in London. The median of 24 forecasts in a Bloomberg News Survey was for a gain of 3,000. Unemployment measured by International Labour Organization methods rose by 48,000 to 2.67 million in the fourth quarter, leaving the rate at 8.4 percent, the most since the end of 1995.
The data fueled opposition claims that Prime Minister David Cameron is trying to cut the budget deficit too quickly after the economy shrank 0.2 percent in the fourth quarter. Government forecasters predict unemployment will reach 8.7 percent by the end of 2012 as the private sector fails to make up for the loss of tens of thousands of public-sector jobs.
“The U.K. labor-market data continue to paint a bit of a mixed picture, but the key point is that unemployment is still rising,” said Vicky Redwood, an economist at Capital Economics Ltd. in London. “We continue to expect unemployment to rise much further in response to the weakness in the wider economy.”
The pound was little changed against the dollar and was trading at $1.5697 as of 11:15 a.m. in London. The 10-year gilt yield was unchanged at 2.094 percent.
Bank of England policy makers voted last week to pump another 50 billion pounds ($79 billion) into the economy by May. Governor Mervyn King said today the latest rise in unemployment reflected the weakness of the economy.
“The height of unemployment is a concern for everyone,” King told a press conference in London after the central bank published its quarterly Inflation Report. “These are not figures anyone would choose to have. We have a very difficult adjustment to make in our economy and there’s no point in pretending otherwise. This is a consequence of it.”
The increase in the number of people claiming jobless benefits last month left the claimant-count rate at 5 percent. Claims rose 1,900 in December instead of the 1,200 initially reported.
Employment rose by 60,000 during the fourth quarter to 29.1 million, prompting the government to argue that the labor market is showing signs of stabilizing.
The unison labor union said the jobless figures showed the government’s economic policies aren’t working, with a third of those unemployed in the fourth quarter having been out of work for longer than a year. A record number of people are working part-time because they cannot find full-time jobs.
The move to expand asset purchases came despite tentative signs of recovery, with indexes of manufacturing, services and construction all rising in January. In the U.S., the unemployment rate fell to a three-year low of 8.3 percent in January and the MSCI All-Country World Index has risen 8 percent this year.
The Confederation of British Industry, the country’s biggest business lobby, said earlier this week that the economy will avoid a slump and growth will pick up this year. Cameron is counting on hiring at private companies to offset about 700,000 public-sector jobs losses by 2017 as a result of his budget squeeze.
Royal Bank of Scotland Group Plc, Britain’s biggest government-owned lender, said on Feb. 10 that it will cut as many as 300 mainly London-based staff in its capital markets and cash equities units after failing to find a buyer for the businesses. The lender said in January it would cut about 3,500 jobs at its investment-banking division.
AstraZeneca Plc, the U.K.’s second-biggest drugmaker, said on Feb. 2 that it will cut 7,300 jobs on top of 21,600 positions already eliminated by Chief Executive Officer David Brennan since 2007.
Today’s report showed that pay growth in the fourth quarter was unchanged at 2 percent, while the figure excluding bonuses barely accelerated to 2 percent from 1.9 percent, underlining the squeeze on consumers facing an inflation rate of 3.6 percent.
--With assistance from Mark Evans and Harumi Ichikura in London. Editors: Andrew Atkinson
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