U.K. Jobless Claims Reach Highest in Almost Two Years

By Svenja O'Donnell

Oct. 15 (Bloomberg) -- U.K. unemployment rose to the highest level in almost two years in September as the prospect of a recession and the global financial crisis prompted a spate of job cuts from banks to construction companies.

Claims for jobless benefits rose 31,800 to 939,900, the highest since November 2006, the Office for National Statistics said today in London. Economists predicted an increase of 36,000, according to the median of 30 forecasts in a Bloomberg News survey. The increase for August was 35,700, the most since 1992.

Rising unemployment may hurt Prime Minister Gordon Brown's efforts to maintain his political revival after he won plaudits for his plan to restore confidence the banking system. Banks will cut staff in London, the engine of the U.K.'s economy over the past decade, and Bank of England policy maker Andrew Sentance says Britain may already be in recession.

``Nothing dents the popularity of a prime minister or government like rising unemployment,'' said David Tinsley, an economist at National Australia Bank in London. ``That bounce will fade before the next election. Next year's story will be of an economy suffering and rising joblessness.''

The pound rose as much as 0.2 percent against the dollar after the release of the data. The currency traded at $1.7486 as of 10:36 a.m. in London.

Unemployment Rate

The unemployment rate in the three months through August rose to 5.7 percent, the most since 2000, the statistics office said. That compares with 7.5 percent in the euro region, 6.1 percent in the U.S. and 4.2 percent in Japan. The number of unemployed people rose 164,000 from the previous three months, the biggest increase since the early 1990s.

``We will do everything we can to help create jobs, maintain jobs in the British economy,'' Brown told reporters today in Brussels. ``These are difficult times in the economy.''

The Bank of England cut its benchmark rate by half a point to 4.5 percent last week in an emergency action with other central banks across the world to prevent financial markets from collapsing.

The British government announced this week that it will take stakes in Royal Bank of Scotland Group Plc and other banks in exchange for 37 billion pounds ($64 billion) in cash. Financial firms have reported at least $635 billion in losses and writedowns worldwide from U.S. mortgage-related investments since the beginning of last year.

Voter Support

Brown's banking rescue pushed up his support among U.K. voters by seven points to 33 percent. The opposition Conservatives still have a 43 percent approval rating, according to a poll by YouGov Plc published Oct. 12. Brown must call an election by the middle of 2010.

Banks may cut 62,000 staff in London by the end of next year to reach the lowest level since 1998, the Centre for Economics and Business Research said in a report on Oct. 13. Job openings in the city's financial-services industry tumbled 14 percent in September, the third consecutive monthly decline, according to a survey by recruitment firm Morgan McKinley released today.

HSBC Holdings Plc, Europe's largest bank by market value, is cutting about 550 U.K. jobs, and Zurich-based UBS AG said Oct. 1 it would eliminate 2,000 positions in its European investment banking unit. Bellway Plc, the U.K.'s second-best performing homebuilder this year, said yesterday it was in the process of cutting 35 percent of its workforce.

`Grim'

Claimant-count unemployment may reach 1.27 million in the fourth quarter of 2009, the highest since the middle of 1999, according to the average of 27 new forecasts sent to the Treasury Oct. 1-9. Unemployment peaked at 3.1 million in 1986, during Margaret Thatcher's second term.

``This is grim, grim, grim,'' said Alan Clarke, an economist at BNP Paribas in London. ``There will be many more job cuts and a lot more bad news to come. We'll probably get four quarters of negative growth.''

Economic growth stalled in the second quarter, ending the longest stretch of uninterrupted expansion in a century. The International Monetary Fund predicts the U.K. economy will contract 0.1 percent next year after forecasting growth of 1.6 percent six months ago.

Sentance said on Oct. 13 that it's likely the U.K. will see ``a fall in gross domestic product for the third and fourth quarters of this year.'' Data suggest ``a negative outlook for output, demand and jobs over the remainder of this year and in early 2009,'' he said.

The weakness in the economy may slow inflation, Sentance said. Today's data suggest wage pressures have eased. Pay, including bonuses, rose an annual 3.4 percent in the three months through August, the least since 2003, the statistics office said. Excluding bonuses, wages increased 3.6 percent from a year earlier, the least since November 2007.

To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.