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UK jobless posts biggest rise since 1991, worse ahead

LONDON - British unemployment shot up at its fastest pace since the early 1990s recession this summer and experts are predicting even bigger rises ahead as the financial crisis takes it toll on companies right across the economy.

The Office for National Statistics said on Wednesday the ILO measure of unemployment rose by 164,000 in the three months to August, even before the year-old credit crunch tightened its grip in the last month.

That took the jobless rate up half a percentage point to 5.7 percent, also its biggest jump since July 1991.

‘Given that the economy stagnated in the second quarter and is set to contract into 2009, the deterioration in labour market trends is likely to intensify. Our forecast is for the unemployment rate to peak at 7.9 percent in Q1 2010,’ said Ross Walker, economist at RBS.

The Bank of England has already cut interest rates by 50 basis points to 4.5 percent in a move coordinated with other central banks last week and analysts say further cuts must be a done deal as inflation has probably peaked and the economy is slowing sharply.

Policymakers' fears that high headline inflation would force wages higher and cause inflation to stay above target for longer now also look unfounded.

Wednesday's data showed annual average earnings growth in the three months to August slowed to 3.4 percent, its weakest in five years. Downward pressure on wages is likely to increase as banks are unlikely to be paying out huge bonuses this year.

2 MILLION OUT OF WORK

Bank of England policymaker David Blanchflower has predicted the number out of work, now 1.792 million, could hit 2 million by Christmas.

The number on jobless benefits rose by 31,800 in September. Employment fell by 122,000 in the three months to August, the biggest drop since February 1993.

Construction and banking firms have been at the forefront of companies shedding staff in the face of the economic slowdown and housing market slump.

But jobs are being cut right across the economy.

Confectionery giant Cadbury Plc CBRY.L has just announced 580 job losses and ITV ITV.L, Britain's largest commercial broadcaster, is cutting around 1,000 jobs.

‘These are difficult times for the world economy,’ Prime Minister Gordon Brown told reporters in Brussels, adding that unemployment was still higher in France, in Germany, in Italy and in America than it is in Britain.

Brown has got a boost in the last week after his plan to end the financial crisis has been taken up across the world but he still faces an uphill battle to win the next election, due by mid-2010, which won't be made easier by the economic downturn.

‘For each individual firm you can see the reasons to cut jobs: orders are weak, corporate liquidity is deteriorating, credit availability is dire. But, the collective effect of such cutbacks to jobs will, of course, be to further undermine consumerspending and house prices,’ said Michael Saunders, economist at Citigroup.

‘We may have avoided financial Armageddon. But, the UK is heading into a severe recession and most of the economic pain still lies ahead.’