By Jennifer Ryan
Jan. 21 (Bloomberg) -- U.K. unemployment rose at the second-fastest pace since 1991 in December as the worsening recession prompted retailers and automakers to cut jobs.
The number of people receiving jobless benefits rose 77,900 to 1.16 million, the highest level since January 2000, the government’s statistics office said today in London. Economists had expected an increase of 81,000.
“These numbers are as bad as we expected and are sadly going to get worse,” said Richard Lambert, a former Bank of England policymaker now leading the Confederation of British Industry. “The combination of falling demand and global credit constraints is pushing unemployment sharply higher.”
Prime Minister Gordon Brown’s government has slipped further behind the Conservative opposition in polls in recent weeks as concern mounted about the severity of the recession. Nissan Motor Co. and Marks & Spencer Group Plc have fired staff in the past month, reducing the impact of Brown’s pledge to create 100,000 jobs through public works.
“Every job loss, every redundancy is a matter of regret and sadness for us all,” Brown told Parliament after the report. “That is why we will do everything in our power to help people back into work.”
Interest Rates
The losses pile pressure on the Bank of England to cut the key interest rate from the current 1.5 percent, and Governor Mervyn King said yesterday that the bank may need to start buying assets within weeks to dig Britain out of its first recession since 1991.
Bonds rose and the pound fell after the report. The yield on two-year government notes fell 12 basis points to 1.412 percent. The pound fell 2.265 cents against the dollar to $1.3734 at 12:50 p.m. in London.
“Job losses are going to continue through the year and possibly into 2010,” said Jeavon Lolay, an economist at Lloyds TSB Bank Plc in London. “Interest rates will be cut next month.”
Policy makers defeated a call from David Blanchflower for a full-point reduction in interest rates this month, minutes of the Jan. 8 decision published today showed. Leaving the rate unchanged, or cutting by more than the half-point expected by investors, may have unsettled markets, the majority of the panel argued. The bank’s next rate decision is on Feb. 5.
Jobs Lost
Retailers, automakers, banks and builders axed thousands of jobs as the credit crisis intensified. Nissan said Jan. 8 it will eliminate about 1,200 jobs at its car plant in Sunderland, northeast England, Britain’s biggest. Marks & Spencer plans to cut 1,230 jobs after sales fell. More than 1,000 jobs are at risk at Land of Leather Holdings Plc after the sofa retailer went into administration.
TT Electronics Plc, the U.K. maker of car sensors for Bayerische Motoren Werke AG, today said it will cut 700 jobs this year in order to minimize the impact of a slump in the automobile industry.
“The acceleration in the pace of job cuts across manufacturing comes on the back of a sharp downturn in production and growing uncertainty about the prospects for global demand,” said Lee Hopley, head of economic policy at the EEF, a manufacturing lobby group.
International Comparisons
The jobless total based on International Labor Organization methods rose 131,000 in the quarter through November to 1.92 million, the highest since September 1997. The rate climbed to 6.1 percent from 5.7 percent in the previous period.
The rate compares with 7.2 percent in the euro region, 3.9 percent in Japan and 7.2 percent in the U.S. Employment fell 26,000 to 29.4 million.
Concern about the economy has robbed Brown of the popularity bounce from his handling of the banking crisis, with all six polls published this year showing his ruling Labour Party falling further behind David Cameron’s Conservatives. An Ipsos-Mori poll yesterday gave the Conservatives a lead of 14 points compared with 4 points a month ago.
“The British economy faces dark days indeed,” Cameron said. “The recession is getting worse. He’s making a great mess of the economy. Market and indeed public reaction suggest there is no real confidence that government policies are working.”
Brown faces the prospect of fighting the next general election, due by June 2010 at the latest, with unemployment at around 3 million, a level last seen in the aftermath of the early 1990s recession.
Prince’s Concern
Prince Charles’s charity that helps find work for youth from poor families said 45 percent of those who lost their jobs in the past quarter were under 25. At least 1.3 million, or a fifth of all young people, are not in education or jobs.
“Youth unemployment costs our economy around 10 million pounds a day in lost productivity,” said Martina Milburn, chief executive of The Prince’s Trust. “Only by helping young people into work can we tap into this lost potential.”
Even lawmakers in Brown’s own Labour Party are concerned about the jobless figures and uneasy about action taken by the government to date.
“This is a depression, not just a recession,” said John McDonnell, a Labour member of Parliament who in 2007 attempted to challenge Brown for the party’s leadership. “The government’s measures have failed to protect people and preserve their jobs. A lack of planning and radical action makes it almost inevitable that unemployment will hit 3 million.”
Bank Bailout
Brown this week pledged to guarantee hundreds of billions of pounds of securities in an effort to spur bank lending as the European Commission forecast the U.K. economy may contract 2.8 percent this year, the most since 1946 when Britain was in the grip of mass demobilization after World War II.
Claimant unemployment rose for an 11th month in December, and the increase in November was revised to 83,100 from 75,700. The unemployment rate rose to 3.6 percent from 3.3 percent in November.
“These figures do not take into account the redundancies announced over the past eight weeks at companies like Woolworths, Santander, Barclays, Denby, Land Rover, JCB, Burberry, Zavvi, Grattan and Empire Direct,” said Brendan Barber, head of the Trades Union Congress. He said there’s a “very strong chance it will pass 2.5 million by June.”
Wage pressures eased, with pay including bonuses rising an annual 3.1 percent in the three months through November, down from a 3.3 percent pace in the period through October. Excluding bonuses, wage growth was unchanged at 3.6 percent.
“Businesses are being increasingly forced against their will to let good staff go,” said David Frost, director general of the British Chambers of Commerce. “Even with some staff accepting pay freezes and working fewer hours, it’s clear that employers are facing serious financial pressures.”
To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net
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