Jobless total's three-year high keeps lid on pay rises

Unemployment has risen to its highest rate in more than three years, while average earnings growth was subdued in the first quarter of this year, the Office for National Statistics said yesterday. In the three months to March, the unemployment rate rose to 5.2% from 5.1%, the highest since November 2002. The number of people out of work rose 44,000 to 1.59 million.

There was also a rise in the number of people claiming unemployment benefit in April, with the claimant count rising by 7,700 to 945,500, its 13th rise in the past 14 months. That left the rate unchanged from March at 3% of the workforce, up from 2.7% a year ago.

"Unemployment is high by recent standards. The government should take swift steps to tackle creeping unemployment growth," said Brendan Barber, general secretary of the TUC.

Economists believe that the increased level of unemployment is keeping a lid on earnings growth, preventing wages being pushed up by sharp rises in utility bills and expectations of higher inflation. Earnings growth picked up to 4.2% in the three months to March, but excluding bonuses the annual rate of earnings growth for the whole economy was 3.8% in March, unchanged from the previous month.

"The fear of second-round effects from higher energy costs to wages is simply not materialising," said John Butler, economist at HSBC.

Analysts said an increase in employment was also part of the reason for muted wage growth. The employment level rose 127,000 over the past three months to 28.9 million, the highest figure since records began.

"The labour market is clearly loosening as the pool of available workers is far outstripping the number of people getting jobs. A loosening labour market should keep a lid on inflationary pressures and that is exactly what we are seeing," said Mr Butler.

The fall in economic inactivity was mainly fuelled by an increasing number of women going to work. The total inactivity rate over the year was down by 0.2 percentage points, with the rate for women down by 0.5 percentage points. Healthier pensioners, attracted by tax incentives, and large inflows of low-cost migrants have contributed to the growing labour market, economists said.

With the number of vacancies down by 5% compared with a year ago, analysts expected the unemployment rate to increase in the coming months.

"Unemployment is likely to rise further before falling back as the economy recovers. Last year's slump in UK productivity made this an inevitable employer reaction in the face of a steadily improving economy," said John Philpott, economist at the Chartered Institute of Personnel and Development.

The latest labour statistics are unlikely to alter the Bank of England's outlook on interest rates, City analysts said. The slow average earnings growth and the relatively benign consumer price figures that came earlier in the week have boosted the case to hold off from any rate rises for some time, said Howard Archer, economist at the financial data group Global Insight.