U.K. Unemployment Falls for First Time Since 2008

By Scott Hamilton

Dec. 16 (Bloomberg) -- U.K. unemployment unexpectedly fell for the first time since February 2008, adding to signs the economy is emerging from its deepest recession in at least three decades.

Claims for jobless benefits declined by 6,300 in November to 1.63 million, the Office for National Statistics said in London today. The median forecast in a Bloomberg News survey of 26 economists was an increase of 12,500. The number of people seeking work in the three months through October rose 21,000 to 2.49 million, the smallest gain in 17 months.

The figures are a boost for Prime Minister Gordon Brown, who is counting on an economic revival to lift support for his Labour Party before a general election due by June. The economy has lost more than 600,000 jobs since the recession began, with the axe falling hardest on people under the age of 24.

“This a real shot in the arm,” Howard Archer, chief European economist at HIS Global Insight in London, said by telephone. “It’s very encouraging. However, I don’t think it’s an end for the rise in unemployment, which may continue until the end of next year. There’s a still a danger the economy may relapse next year, so I don’t think it’ll have a big impact on the Bank of England’s view of things things.”

Market Reaction

The pound rose after the report and was trading at $1.6334 as of 10:38 a.m. in London compared with $1.6240 yesterday. The 10-year gilt yield was little changed on the day at 3.892 percent.

The number of people in work rose by 53,000 to 28.9 million in the quarter through October, the biggest increase for 17 months, the statistics office said. In October, the number of claims rose by 5,900 instead of the 12,900 originally reported. The claimant rate in November was unchanged at 5 percent.

“It is encouraging that there are more people in jobs as we get near to Christmas, and also that so many more young people have been helped,” Work and Pensions Secretary Yvette Cooper said. “But it is still tough for a lot of people, and we still expect unemployment to increase again. So we are determined to do more.”

Unemployment has risen by less than officials initially predicted as companies froze pay and cut working hours to retain skilled labor needed once the economy returns to growth.

Jobless Rate

At 7.9 percent, the U.K. jobless rate is below the 10 percent in the U.S. and the 9.8 percent euro-region average. Many economists expect it to peak below 10 percent, compared with the postwar high of 11.9 percent record in 1984. Treasury forecasts published last week show the level of jobless claims is close to a peak.

The opposition Conservative lead in opinion polls has shrunk in recent weeks to less than 10 percentage points after Brown stepped up attacks on bankers and portrayed the Conservatives as the party of the rich. The margin is narrow enough to deny the opposition an outright majority at the election.

The labor market is likely nevertheless weigh on the wider economy, and companies may be slow to resume hiring as they initially increase the hours of existing workers, economists say.

Average earnings growth picked up to 1.5 percent in the quarter through October from 1.4 percent, with the rate excluding bonuses unchanged at 1.7 percent.

The fragility of the recovery was underlined earlier this month when Corus Group Ltd., the European unit of India’s Tata Steel, said it will cut 1,700 jobs at its Teeside plant in northeast England after demand for metal dropped. Diageo Plc, the world’s biggest liquor-maker, is also cutting jobs after closing facilities including a packaging plant and a distillery.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net.