Unemployment rate rises to 5%

The UK labour market showed further signs of weakening today with the publication of figures showing that the number of people looking for work jumped by 111,000 in the three months to November.

The increase brought the total number of people out of work to 1.53 million, the highest since the end of 2002. The unemployment rate for the quarter stood at 5%, up from 4.7% the previous quarter and the highest rate in two years.

"The trend in the employment rate may be starting to fall, while the trend in the unemployment rate is increasing," the Office for National Statistics (ONS) said.

Claimant count unemployment, which includes people receiving Jobseeker's Allowance, rose by 7,200 in December to 909,100, the 11th consecutive monthly increase. The December figure takes claimant count unemployment to its highest level since November 2003.

Analysts said the continuing softness in the labour market would strengthen the case for a cut in interest rates, although the Bank of England would have also have weigh in firmer consumer spending and stronger house prices.

"We have argued that the labour market will hold the key to the future direction of monetary policy. This set of data support the view that the next move is down and, if the fall in employment continues, that move could come sooner rather than later," said John Butler of HSBC.

The Bank of England is following wage settlements closely in its interest rate calculations and on this score, today's data was encouraging.

Average earnings growth fell by 0.2% to 3.4% in the year to November compared with the previous month. Excluding bonus payments, the figure was 3.8%, down by 0.1% from October's rate. Increases in the public sector continued to outstrip those in private firms at 4.1% compared with 3.3%.

"This confirms that late in 2005 there was still no evidence that pay was starting to be pushed up by recently higher consumer price inflation and increasing energy bills," said Howard Archer of Global Insight.

But the situation in manufacturing remains as grim as ever. The number of jobs in the sector fell by 109,000 in the three months to November to a record low of 3.1 million.

There was also an increase in the number of people classed as economically inactive, including students, those looking after a relative and people who have given up looking for a job.

The figure rose by 25,000 on the quarter to 7.94 million, the highest total since records began in 1971.

"Recent figures have been erratic and this quarter's are disappointing," said the minister employment and welfare reform, Margaret Hodge. "However, taking the year as a whole the number of people in work is up by over 200,000."

The ONS said there were 28.8 million people in work in September to November.