UK jobless rate hits six-year high

Britain's unemployment rate has hit a six-year high, according to official data released today.

The Office for National Statistics said the number of unemployed people rose by 92,000 between April and June to push the jobless rate up to 5.5%, the highest since the summer of 2000. Analysts had expected a smaller rise in the rate to 5.4% from 5.2% in the prior quarter.

The figures were published as it emerged that one Bank of England policymaker opposed this month's interest rate rise because of labour market concerns.

Some economists said the figures showed there was more spare capacity in Britain's economy than most policymakers thought. Even if one more rate rise is delivered by the end of the year - as strongly signalled by the Bank - that may be as far as it goes, said Gavin Redknap, an economist at Standard Chartered Bank.

"We expect that the Bank of England's concerns over inflation are somewhat overdone," he said. "We expect the Bank to raise rates to 5% by November but still look for lower rates next year as the domestic and global economies slow."

The number of unemployed claimants rose in July, but by less than expected, to show 957,000 people out of work and claiming benefits.

The figures were published at the same time as minutes from the Bank's August meeting, when it surprised financial markets with a rate rise to 4.75%. The minutes showed six members of the Bank's monetary policy committee had backed the move in a bid to keep inflation in check.

But a new member, David Blanchflower, wanted the cost of borrowing to stay put, given the rise in unemployment and subdued wage pressures.

Analysts said the committee did not seem to be gunning for a series of rate hikes. One comment in the minutes said: "An early increase in rates would reduce the risk that a sharper rise would be needed later."

Geoffrey Dicks, an economist at RBS, said: "The minutes, and the news that Blanchflower is relatively dovish, do not make a case for an aggressive tightening of monetary policy."

The Bank has been worrying that higher utility bills and other rising household costs such as petrol will spill over into inflation-busting pay deals, making it harder to bring prices back to the target. There were hints in today's labour market data that pay packet growth may be starting to pick up.

The ONS said average earnings rose faster than expected in the three months to June, up 4.3% from a year ago, driven by bonuses in the financial sector and faster wage growth in the manufacturing sector.

Howard Archer, an economist at Global Insight, said: "If earnings continue to creep up, the odds of another interest rate hike before the end of the year will become ever more likely."