U.K. Unemployment Rises to Highest Since 1995

By Svenja O’Donnell

Sept. 16 (Bloomberg) -- U.K. unemployment jumped to the highest level since 1995 as the recession destroyed work in industries from banking to construction.

The number of people seeking jobs in the three months through July rose by 210,000 to 2.47 million, the Office for National Statistics said in London today. A separate measure showing claims for unemployment benefit climbed by 24,400 in August to 1.61 million. The median forecast of 28 economists in a Bloomberg News survey was for an increase of 25,000.

Bank of England Governor Mervyn King said yesterday that households will feel pain from the recession even after the economy has stopped shrinking “because unemployment is either going to keep rising or remain high.” Policy makers are printing as much as 175 billion pounds ($288 billion) in money to aid economic growth and avoid the threat of deflation.

“If anything the U.K. economy is only just emerging from recession, and this is a lagging indicator,” said Philip Shaw, an economist at Investec Securities in London. “We’re looking at unemployment peaking towards the middle of next year. Things are likely to improve at a slow rate, but it’s likely to remain uncomfortable for a long time.”

Election Due

Prime Minister Gordon Brown, who faces an election next year, said yesterday that the recovery “is still fragile” and that stimulus programs to boost the economy should be maintained.

“Unemployment still remains a real problem for families up and down the country,” Employment minister Jim Knight said on BBC News. “We’ve got to keep the support going and not be tempted to celebrate the recovery.”

The unemployment rate in the three months through July rose to 7.9 percent, the most since 1996, the statistics office said. That compares with the latest figures of 9.5 percent in the euro region, 9.7 percent in the U.S. and 5.7 percent in Japan.

The jobless rate based on benefit claimants rose to 5 percent, the most since 1997, the statistics office said.

“There are no signs of recovery here,” Trades Union Congress General Secretary Brendan Barber said. “It might look rosier in city dealing rooms but out in the real world unemployment is the number one issue.”

Companies Firing

WS Atkins Plc, the U.K.’s biggest engineering-design company, said last week it eliminated about 900 more positions in the past five months to weather the construction slump. Lloyds Banking Group Plc, the nation’s largest mortgage lender, said last month it will cut about 200 British jobs in its general insurance unit, bringing the total reduction to more than 8,000 this year.

The economy has shown signs of shaking off the slump. Services expanded at the fastest pace in almost two years in August. The British Chambers of Commerce cut its estimate for unemployment this month, estimating it will peak at 3 million people in 2010 rather than 3.2 million people.

“Although the increase in unemployment was marginally smaller than feared, the figures are consistent with our assessment,” said David Kern, chief economist for the BCC. “Employment continues to fall, and without an increase in the number of people deemed ‘economically inactive,’ the increase in unemployment would have been much larger.”

KPMG and the Recruitment and Employment Federation said last week that the labor market is showing signs of improvement. Their measure of hiring for permanent jobs rose to 50.6 last month from 46.1 in July. That’s the first result above 50, signaling expansion, since March 2008.

Companies may also have limited the pace of job losses by curbing pay increases instead, Bank of England Deputy Governor Charles Bean told lawmakers yesterday.

Average earnings excluding bonuses grew an annual 2.2 percent in the quarter through July, the least since records began in 2001. the statistics office said. Including bonuses, they increased by 1.7 percent.

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