Unemployment fall raises recovery hopes

March 17th, 2010

Unemployment has fallen unexpectedly. Photograph: Graham Turner/Public Domain

Gordon Brown was given an unexpected pre-election boost this morning as the number of people claiming unemployment benefit saw its biggest fall since 1997.

The figures raised hopes that the jobs market has turned the corner and that the economy’s recovery from recession is gathering steam, although the good news was tempered by a drop in employment to the lowest level since 2006.

There were 32,300 fewer people receiving jobseeker’s allowance in February than in the previous month, figures from the Office for National Statistics showed this morning. City economists had expected unemployment to go up by 8,000. Also, January’s increase of 23,500 has been revised lower to a rise of just 5,300.

There are now 1.59 million claimants, the lowest level since last July.

The pound rose against the dollar on the news to near a three-week high of $1.5315.

“It just confirms the labour market has done better in this recession than we thought it would,” said George Buckley at Deutsche Bank. “You do tend to get this volatility of ups and downs around the turn in the cycle; it does look therefore that unemployment may well have peaked. There is a risk that it goes up further but the trend certainly seems to be improving.”

The wider Labour Force survey measure, which also includes people out of work who are not claiming benefits, also fell, by 33,000 in the three months to January to 2.45 million – the biggest drop since July 2007. This took the jobless rate down to 7.8% in the first fall for nearly two years. Unemployment among 18-to-24-year-olds fell by 34,000 to 715,000, but for the over-50s joblessness rose by 14,000 to 398,000.

Opposition parties welcomed the figures but said there was still “real cause for concern”.

Shadow work and pensions secretary Theresa May said: “With fewer people in work and fewer jobs in the economy, there is now a real fear of a jobless recovery under Labour. Long-term unemployment is continuing to grow and more people are giving up on work altogether, disappearing from the unemployment figures.

“We can’t afford five more years of Gordon Brown. We need a credible plan for jobs and growth, but Labour’s policies will put recovery at risk, undermining confidence, threatening higher interest rates and mortgage rates, and ultimately damaging jobs. We desperately need change to get Britain working again.”

The number of people who have been unemployed for more than 12 months rose by 61,000 over the quarter to 687,000, the highest figure since 1997. And employment is down 54,000 to 28.86 million, the lowest level since 2006. A record 8.16 million people are now classed as economically inactive, which includes students, people on long-term sick leave and those who have given up looking for a job.

Liberal Democrat work and pensions spokesman Steve Webb said: “The sad story is that people are giving up on looking for work instead of finding jobs. A fall in the jobless figures hides the surge of people who have lost hope and resigned themselves to long-term unemployment.

The government was remarkably cautious in its response. Yvette Cooper, the work and pensions secretary, noted: “We’ve been predicting that unemployment would increase up until the summer and then start to fall. We do think that things will still be difficult for some time to come but we are right to keep that support up for jobs and the economy.”

Earlier this week, the Bank of England warned that job losses could continue in coming months. The Chartered Institute of Personnel and Development has always said that the UK has a high rate of “hidden” joblessness.

The number of people working part-time was stable at 7.7 million, and of those 1.04 million are working part-time because they cannot find a full-time job, up 20,000 on the quarter.

Ian Brinkley, associate director of the Work Foundation, said: “The underlying labour market is much weaker than the fall in overall unemployment implies. Falling unemployment and falling employment can only be reconciled because the labour market as a whole is contracting. The numbers who are officially defined as inactive and who said they wanted a job jumped by just over 60,000. More people are simply falling out of the labour market.”

Many economists were similarly guarded in their response to the data.

“Today’s data gives yet more weight to the idea that the labour market is performing better then the economy as a whole. It is unusual to see unemployment to fall at this stage of the cycle,” said Hetal Mehta at the Ernst & Young Item Club. “Given our expectations that the recovery will be patchy, we would not be surprised to see some modest increases in unemployment in the next few months.”