Jobless rise may keep rate pegged

The number of people out of work and claiming benefit rose for the first time in 15 months in October as Britain's long downward trend in unemployment came to a stuttering halt, official figures showed yesterday.

With evidence that growth in average earnings has also slowed, the City said the message from the labour market meant that interest rates may well have peaked at 4.75%.

The Bank of England's monetary policy committee voted unanimously this month, the seventh in a row, to keep rates unchanged at 4.75%.

In the minutes, the MPC did not even discuss a possible rate rise, saying that "UK growth in the third quarter had been considerably weaker than expected" and "house price inflation had been declining rapidly".

According to the Office for National Statistics, the claimant count for October rose by 900 to 836,700 and it revised up the claimant count in September to an increase of 1,600 from a fall of 200. The jobless rate under this measure for October was unchanged at 2.7%.

On the more comprehensive International Labour Organisation measure of unemployment, however, the rate fell to a new record low at 4.6% for the three months to September from 4.8% in August.

Even using this yardstick however, officials said there had been recent signs of a softening in demand for labour, indicating the employment market may be at a turning point.

The ONS said average earnings growth was 3.7% in the three months ending September against 3.8% in August, below economists' expectations.

John Butler of HSBC said: "The inflationary pressure from the labour market is simply not coming through, despite rising employment and a cash rich corporate sector."

In the minutes, the MPC highlighted the possible inflationary risk from the tightening labour market. George Buckley of Deutsche Bank said that some of the Bank's concerns over possible inflationary factors at the time of the meeting two weeks ago, such as the muted growth in salaries, have since eased.

The MPC said it thought recent official data may be overstating the decline in the manufacturing sector. But, in a separate release, the CBI said smaller manufacturers have seen total orders decline at the fastest rate for a year and business confidence falling for the first time in 12 months.