Unemployment jumps to 2.38 million

Empty office

Total unemployment is now at its highest level since 1995, although a smaller-than-expected rise in people claiming benefits suggests that the pace of job losses has eased.

The number of people out of work jumped by 281,000 to 2.38 million in the three months to May, according to the latest figures from the Office for National Statistics. The jobless rate also shot up to 7.6% as businesses shed jobs to cope with the downturn. In May alone, unemployment increased by 120,000 – the worst monthly rise seen so far in the recession.

In contrast, the number of people claiming unemployment benefits rose by just 23,800 – its smallest rise for 12 months and much less than the 41,200 increase expected.

Economists say this might indicate that the pace of job losses is easing in response to the slight improvement in economic conditions.

Employment has fallen by 1.8 % from peak to trough, compared with a 4.9% peak to trough fall in economic activity, says Charles Davis, economist at the Centre for Economic Business Research.

However, he warns that this means unemployment has much further to fall: “In this recession, firms have been attempting to hoard labour where they can but weaker economic activity will necessarily mean more job cuts are needed. It is hard to see how employment could not still have a significant way to drop, especially in the public sector where the reality of the major deterioration in the public finances has yet to hit home at all.”

Indeed, the latest figures show a stark contrast between job losses from the private sector, and those from the public section. Employment in the public sector actually grew by 285,000 over the three months to March compared to the same period in 2008. Earnings, meanwhile grew by 3.5%, compared to growth of just 1.8% in the private sector.

Davis believes that unemployment is still set to break through the three million barrier in 2010, and continue rising into 2011 as a result of an “anaemic” recovery in the private sector.

This means that people already out of work could contiue to struggle to return to employment.

Brendan Barber, general secretary of the Trade Union Congress, says “These figures are truly horrendous. People who have lost their jobs this month and who fear they will in months to come are not talking of recovery or green shoots."

However, Howard Archer, chief UK and European economist at IHS Global insight, is more optimsitic: "There are signs that the rise in unemployment is currently being limited to some extent by companies and workers showing increasing flexibility in trying to avoid permanent job losses, including the use of such measures as wage freezes or pay cuts, extended unpaid leave, career breaks and going part-time."
Whether or not such measures will be able to stem job losses remains to be seen. Archer adds: "It is likely that the number of unemployed still has some considerable way to rise."