Rate of unemployment slows

Business people

The recession appears to have loosened its grip on the UK, with a smaller-than-expected rise in the number of people out of work during the three months to August.

The number of people out of work climbed by 88,000 to 2.47 million during the period - significantly less than the peak of 281,000 recorded in the three months to May.

There are now 2.47 million people out of work, although analysts had been expecting the figure to breach the 2.5 million mark.

The headline rate of unemployment is 7.9%, according to the Office for National Statistics. Meanwhile, the number of people claiming unemployment benefit rose by 20,800 to 1.63 million - the smallest monthly increase since May 2008. Analysts had been expecting a jump of 24,500.

Fears that youth unemployment would reach one million also proved unfounded, but the number of school leavers out of work hit 946,000.

Despite the better-than-expected statistics, unemployment is still at a 14-year high.

And there are concerns that the worst is not yet behind us. Howard Archer, economist at Global Insight, says it is “premature” to anticipate any near-term turnaround in the labour market.

“We suspect that unemployment still has some way to rise," he adds. "Although the economy could have stopped contracting in the third quarter of this year, growth is unlikely to be strong enough to create net jobs for some considerable time to come."

Doubts about the strength and sustainability of the UK's recovery are likely to prompt businesses to keep their labour forces as tight as possible, Archer says.

In addition, wages are still feeling the pressure from the recession. The latest figures show that average earnings, excluding bonuses, increased by 1.9% in the three months to August 2009 compared with the previous year - the lowest rise since comparable records began in 2001.
Vicky Redwood, UK economist at Capital Economics, describes the latest data as “pretty encouraging” although she also believes there could be more bad news to come.

“Pay growth has yet to react fully to the previous rises in unemployment," she explains. "Indeed, we expect pay growth to resume its downward trend before long – keeping a check on household income growth and keeping alive the threat of deflation."