U.K. Jobless Rises Less Than Forecast as Slump Eases

By Jennifer Ryan and Svenja O’Donnell

Nov. 11 (Bloomberg) -- U.K. unemployment rose at the slowest pace in 18 months in October, bolstering government claims that efforts to lift the economy out of recession are working.

Claims for jobless benefits increased by 12,900, the least since April 2008, the Office for National Statistics said in London today. The median forecast in a Bloomberg News survey of 20 economists was an increase of 20,000. The number of people seeking work in the three months through September rose 30,000, the smallest gain since the period through May 2008.

Prime Minister Gordon Brown is counting on an economic revival to narrow the Conservative lead over his Labour Party before a general election due by June 2010. Economists expect unemployment to keep rising long after the economy returns to growth, casting doubt over the strength of the recovery.

“I think we probably are out of the woods but I’m not convinced how sustainable it is,” said George Buckley, chief U.K. economist at Deutsche Bank AG. “We see a recovery that peters out next year.”

The economy unexpectedly shrank 0.4 percent in the third quarter, extending the slump to six quarters, the most since records began in 1955. Bank of England officials say the recovery may be muted as unemployment and the prospect of tax increases to curb the budget deficit weigh on spending.

Doubts

Doubts over the sustainability of the recovery prompted Bank of England policy makers to raise their bond-buying program by 25 billion pounds ($42 billion) last week to 200 billion pounds. The central bank will release new growth and inflation forecasts at 10:30 a.m. today.

Britain has lost more than 600,000 jobs since the recession began, taking the unemployment rate to 7.8 percent in the three months through September. That compares with 10.2 percent in the U.S. in October, 9.7 percent in the 16-nation euro region in September and 5.3 percent in Japan. A fifth of people age 16 to 24 are without work in the U.K.

Claimant unemployment has risen for 20 consecutive months and stood at 1.64 million in October, the highest level since 1997. In September, the number of claims rose 20,600 instead of the 20,800 previously reported.

Brown’s popularity dwindled as the financial crisis forced the government to bail out banks with billions of pounds of public money and plunged the economy into recession. David Cameron’s Conservative opposition led Labour by 10 percentage points in a Populus Ltd. poll for the Times newspaper finished on Nov. 8.

Job Losses

While services, manufacturing and house prices are showing signs of recovery, companies are still cutting staff to curb costs.

This month alone, Lloyds Banking Group Plc, HSBC Holdings Plc and Royal Bank of Scotland Group Plc have announced plans to ax a combined 10,400 jobs. BAE Systems Plc’s Land Systems unit will cut 500 jobs in the U.K., the Unite union said on Oct 29.

Some companies have spared jobs by cutting or freezing pay and shortening working hours. Many economists expect unemployment to peak below 10 percent, compared with almost 12 percent reached in the aftermath of the early 1980s recession.

Average earnings excluding bonuses grew an annual 1.8 percent in the quarter through September, the least since records began in 2001, the statistics office said. Including bonuses, they increased by 1.2 percent.

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