Number in work reaches record high

The prospect of a rise in interest rates today increased as a strong labour report showed a record number of people in work.

According to the Office for National Statistics (ONS), the employment level rose by 90,000 in the three months to December, reaching 28.52 million - the highest figure since comparable records began in 1971.

The number of people claiming jobseeker's allowance last month fell by 11,000 to 813,200, the lowest since summer 1975. However, the total unemployment figure - which includes those not eligible for benefits - rose by 32,000 over the last quarter of 2004 to 1.41 million, the biggest three-monthly increase for almost two years.

The apparent discrepancy of rising unemployment and record numbers in work can be attributed to an increase in the working population and a fall in the number of people who are economically inactive.

Numbers of the latter, including those who are looking after relatives, have given up looking for work or have taken early retirement, fell by 62,000 in the last quarter of 2004 to 7.85 million.

Average earnings for the three months to December - an indication of inflationary pressure - rose by 4.5% excluding bonuses, up 0.1% from the November rate. The Bank of England's monetary policy committee (MPC) has said it regards as earnings growth of 4.5% or above as creating possible inflationary pressures.

Analysts said today's report, coupled with yesterday's stronger than expected inflation report, pointed to another rise in interest rates.

"With the labour market tight and inflation recently higher, there is the clear risk that pay settlements will pick up further over the coming months," Howard Archer, the chief UK economist at consultancy Global Insight, said. "Consequently, we continue to believe the odds are moving towards the Bank of England raising interest rates around May or June."

According to the ONS, the claimant count measure of unemployment fell by 11,000 in January, more than the 4,500 that had been expected and coming after a revised fall of 8,300 in December. That brought the jobless rate down to 2.6%, the lowest since April 1975.

The more internationally recognised ILO measure of unemployment rose 32,000 in the three months to December compared to the previous three months, leaving the rate at 4.7%.

Despite the overall strength of the labour market, manufacturing continued to shed jobs. For the three months to December, the sector lost 104,000 jobs from a year ago.

Industrial disputes accounted for the loss of 3,000 working days in December, the lowest monthly figure since 1997. The UK's jobless rate of 4.7% is one the lowest in the world, comparing to 9.7% in France, 10.4% in Spain and 18.3% in Poland.