U.K. Unemployment Rises Most Since 1992; Brown Sees Worse Ahead

By Robert Hutton and Brian Swint

Nov. 12 (Bloomberg) -- U.K. unemployment rose the most in 16 years last month, and Prime Minister Gordon Brown's government said the nation should prepare for worse as the economy heads for its first full-year contraction since 1991.

The number of people receiving jobless benefits rose 36,500 to 980,900, the highest level since March 2001, the Office for National Statistics said today in London. Economists had expected a gain of 40,000.

``We're not at the bottom of the downturn, that's very clear,'' Employment Minister Tony McNulty told reporters. ``We're in tough times.'' Brown said in Parliament that ``unprecedented circumstances'' in the economy require ``very special measures.''

The comments mark a shift for Britain's Labour government, which for most of the year has argued that the U.K. is better placed than other nations to face the global slump. Brown, who says he's leading the Group of Seven in developing plans for a recovery, now is preparing voters at home for a recession.

The pound dropped to a record low against the euro after Bank of England Governor Mervyn King today forecast a contraction for much of the next year. Central bank policy makers earlier this month slashed the benchmark interest rate to 3 percent, the lowest since 1955.

Rising Joblessness

The jobless total based on International Labor Organization methods rose 140,000 in the quarter through September to 1.83 million, the highest since 1997. The rate of 5.8 percent was the most since 2000 and up from 5.4 percent in previous period. It compares with 7.5 percent in the euro region, 6.5 percent in the U.S. and 4.2 percent in Japan, the statistics office said.

``We are in for a fairly turbulent time,'' Adam Chester, chief economist at HBOS Plc, said in a Bloomberg Television interview. ``Unemployment will head perhaps to 3 million as we get into 2010. The deterioration of the jobs market does not bode well for consumer spending.''

While Brown has won praise for his handling of the banking crisis, he faces the prospect of fighting the next election with unemployment approaching its highest since the early 1990s. He has until mid-2010 to seek a fourth term for his governing Labour Party.

``The trend in the unemployment figures is now becoming really damaging and will be a huge worry up and down the country,'' said Chris Grayling, a lawmaker from the Conservative opposition who speaks on the jobs market. ``The government seems to have no idea of how to deal with the problem.''

Benefit Claims

Unemployment rose for a ninth month in October, and the increase in September was revised to 36,300 from 31,800. The unemployment rate rose to 3 percent last month, the highest since October 2006, from 2.9 percent.

``The human cost of this downturn will unfortunately be higher than initially expected,'' said John Cridland, deputy director-general of the Confederation of British Industry, which represents businesses employing a third of the U.K.'s private- sector workforce. ``Job losses are an unwelcome but inevitable consequence of these difficult times.''

While Brown garnered popular support after his plan to part nationalize cash-strapped banks was copied elsewhere in Europe and in the U.S., the Conservative Party, led by David Cameron, retains a lead of about 10 points in opinion polls.

That's enough to win the next election, and economists expect gloomy economic news to pile up over the next year. Unions that fund the Labour Party said Brown should fight perceptions that benefit seekers are sapping government cash.

`Scrounger Count'

``Unemployment figures are seen as the scrounger count by some and poverty level benefits are considered a way to drive people back to work,'' said Brendan Barber, general secretary of the Trades Union Congress. ``This argument now looks desperately out of touch. More than a 1,000 people a day are now finding themselves unemployed through no fault of their own.''

After almost 16 years of continuous expansion, the U.K. economy contracted 0.5 percent in the third quarter. The International Monetary Fund predicts it will shrink 1.3 percent in 2009, the most in the Group of Seven industrial nations.

Brown reiterated suggestions that the U.K. government will follow the U.S., Germany, China and Spain in stimulating growth either by cutting taxes or lifting spending. The Treasury will give details of the plan in its pre-budget report this month or next. The prime minister also suggested central banks have more room to reduce interest rates.

``People are beginning to understand around the world that we are dealing with a new set of circumstances, of low inflation next year, a downturn and the credit crunch, and that requires very special measures,'' Brown said in the House of Commons. ``Round the world there is now increasing support for the policy we have put forward.''

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.netBrian Swint in London at bswint@bloomberg.net.