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Cameron 'disappointed' at unemployment rise

Published 15/07/2015

The new figures end the two-year downward trend in unemployment figures
The new figures end the two-year downward trend in unemployment figures

David Cameron has admitted he is "disappointed" after official figures showed unemployment rising for the first time in more than two years.

But the Prime Minister insisted there were "mixed messages" from the data, which found the jobless total was up 15,000 to 1.85 million in the three months to May.

Mr Cameron argued that long-term unemployment was still falling and wages were far outstripping inflation.

Some analysts have suggested the increase in unemployment - the first during a quarter since March 2013 - could be a "blip" reflecting business uncertainty in the run-up to the general election.

The Office for National Statistics (ONS) recorded pay rises continuing to accelerate, with average weekly earnings up by 3.2% year-on-year in the three months to May, up from 2.7% in the three months to April.

It is the strongest rate since April 2010 and with inflation hovering at around zero, it means that real terms pay is improving at a rate not seen for nearly eight years.

Regular pay excluding bonuses rose by 2.8%, the highest rate since February 2009.

The unemployment rate was 5.6% after sinking to 5.5% in the three months to April.

There were 30.98 million people in work in the latest three-month period, 67,000 fewer than in the preceding period. It was the first quarterly fall since April 2013.

While the number of part-time workers fell by 97,000, the number of full-time workers increased by 30,000, the figures showed.

Numbers claiming unemployment-related benefit in June rose by 7,000 to 804,200, the first monthly increase since October 2012.

It comes a day after expectations about a hike in interest rates was heightened by comments from Bank of England governor Mark Carney, who said the timing of a rise was moving closer.

An increase in joblessness may be thought to weaken the likelihood of a hike, though this would be mitigated by the continuing improvement in pay settlements.

Today's data showed the number of those classed as economically inactive rose by 30,000 to 9.02 million in the three months to May.

This was mainly due to more people with long-term sickness. The group also includes students and people looking after the family or home.

Youth unemployment - for people aged 16 to 24 - fell by 13,000 to 729,000.

The number of people unemployed for more than 12 months reduced by 53,000 to 570,000.

Speaking at Prime Minister's Questions in the Commons, Mr Cameron said: "There are mixed messages in these figures. It is disappointing that the claimant count has gone up having fallen for so many months in a row and still being at the lowest level since 1975.

"But long term unemployment is down, youth unemployment is down, the rate of employment for women is at a new record high.

"And interestingly when you look across the last year you can actually see that all of the rise in employment in the last year has been people working full time."

Jeremy Cook, chief economist at the international payments company, World First, said the surge in wages would back up Mr Carney's talk on the time of a rates hike moving closer.

He pointed to the fall in employment being mainly made up of part-time workers with a rise for full-time jobs.

The data would "give credence to those who are looking for the Bank of England to hike as soon as Q1 of next year", he added.

Policy makers have previously signalled the timing of a rate hike around the middle of 2016.

Vicky Redwood of Capital Economics said: "The soft tone of the latest UK labour market figures will temper expectations of a near-term rate rise following yesterday's relatively hawkish comments by some MPC [Monetary Policy Committee] members including the governor."

"Although some members of the MPC are clearly ready to start voting for a rate rise soon, we don't think that the economic data are strong enough to push a majority towards one yet."

Howard Archer of IHS Global Insight said a combination of factors could be behind the weak jobs numbers.

These included "the slowdown in GDP growth in the first quarter, recent uncertainty first of all relating to May's general election and more recently to a more uncertain global economic outlook, including the heightened Greek crisis".

He added: "We suspect that the latest data will prove to be a blip in the downward trend in unemployment."

Chris Williamson, chief economist at Markit, said: "Survey data suggest that this drop in hiring is temporary, and that the economy has picked up speed again since the election.

"If the data continue to strengthen in coming months in line with the surveys, a November rate hike remains very much in the picture."

TUC general secretary Frances O'Grady said: "Rising joblessness is a reminder that the recovery can't be taken for granted, especially with youth unemployment still so high.

"While earnings are finally going up, pay rises are lower than before the recession and there is still a long way to go just for families to recover lost living standards.

"If we want a recovery that is built to last for the long-term, we need a better economic plan with more investment in skills, infrastructure and innovation to help job creation and growth."

Ben Brettell, senior economist at Hargreaves Lansdown stockbrokers, said: "These figures should not prove cause for concern.

"The pace of job creation has been expected to slow for some time, and the magnitude of today's rise in unemployment is extremely small.

"We are seeing more of a plateau than a downturn in employment - to be expected as the economic recovery becomes more mature."

James Sproule, chief economist at the Institute of Directors, said: "Today's slight increase in the unemployment rate may have surprised economists and spooked policymakers, but there is more good news than bad in these latest figures.

"As the economy strengthens, businesses are feeling more confident, and people are shifting into full-time work.

"For people who could only find part-time work or work for themselves in recent years, this is good news."

Neil Carberry, CBI director for employment and skills, said: "While it is disappointing to see that employment has fallen, this is largely due to reductions among those self-employed.

"This fall must be seen against the backdrop of strong employment growth since the end of 2013, so it is far too early to draw conclusions.

"Nevertheless, it offers a timely reminder of the importance of Government treading carefully in the labour market and protecting the flexibility that gives Britain a great record on jobs."

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