Unemployment in UK increasing rapidly

Bloomberg

Unemployment in Britain rose at the fastest pace since at least 1971 in February, deepening the plight of Prime Minister Gordon Brown as national elections loom.

The number of people receiving unemployment benefits increased 138,400 to 1.39 million, the Office for National Statistics said yesterday.

A broader measure of unemployment climbed above 2 million for the first time since 1997 and incomes grew at the slowest pace since at least 1991.

With 15 months before he has to hold an election, Brown is losing support as companies from automakers to retailers eliminate jobs to reduce costs. The Bank of England this month cut the benchmark interest rate to almost zero and began pumping printed money into an economy facing its worst recession in least three decades.

Unemployment "can easily go above 3 million within a year," said George Buckley, chief U.K. economist at Deutsche Bank in London. "It's going to come at a very bad time for the government, when they're trying to get re-elected. The risk is also that we will have a further downward spiral, with this affecting consumption and then leading to further job losses."

Thousands of jobs cuts at companies from Ford Motor and GKN to Vodafone Group have taken unemployment to the highest level since the ruling Labour Party took office 12 years ago. Some including Toyota Motor are trying to avoid layoffs by reducing working hours and basic pay at U.K. factories.

With the Confederation of British Industry expecting joblessness to breach 3 million by June 2010, Brown faces the prospect of fighting the next election with one in 10 people of employment age out of work, a rate last seen in the early 1990s.

Brown has until June 2010 to hold the election, and recent opinion polls give the Conservatives, led by David Cameron, a lead of as much as 16 points over Labour. Brown narrowed the gap with the opposition party to as little as one point in December.

Claimant unemployment rose for a 13th month in February, the longest stretch since the 16-month period to June 2006. The increase in January was revised to 93,500 from 73,800. The jobless rate rose to 4.3 percent in February, the most since March 1999, from 3.9 percent in January.

Wage pressures subsided, with pay falling 0.2 percent in January from a year earlier because of the lower bonus payments, the first decline since records began in 1991. In the three months through January, wage growth slowed to a record 1.8 percent from 3.1 percent. Excluding bonuses, the pace slowed to 3.5 percent from 3.6 percent.

Shrinking economy

As finance minister for a decade until June 2007, Brown is under mounting pressure to apologize for his role in the turmoil that has starved companies and consumers of credit, forced the government to take control of four U.K. lenders and led to the steepest drop in manufacturing in at least four decades. The Bank of England expects the economy to shrink 3.5 percent this year.

Brown has pledged a 20 billion-pound ($28 billion) stimulus package to help people through the slump and offered subsidies to encourage employers to hire and train people who have been out of work for more than six months.

"It is the government's determination that we do not allow a short-term increase in unemployment to become a long-term increase in unemployment as we saw in previous recessions," Michael Ellam, a spokesman for Brown, told reporters on Tuesday.

Group of 20 leaders meet in London on April 2 as the first global recession since World War II sends unemployment soaring from the export-reliant economies of Asia to European victims of the property bust Spain and Ireland.