The UK labour market showed further signs of strengthening in the three months to October with an unexpected fall in the number of people claiming unemployment benefit.
The number of claimant counts dropped by 6,300 during the period – its first decline in more than 18 months. Economists had been expecting a rise of 13,300.
Howard Archer, chief UK economist at IHS Global Insight, says: “It seemed inconceivable only a few months ago that we would be seeing any falls in claimant count this year – or even in the early months of 2010.”
However, the total jobless figures continued to rise – albeit at its slowest pace since the period covering the three months to May 2008. The number of people out of work climbed by 21,000 to hit 2.49 million. As expected, this left the jobless rate at 7.9%.
Meanwhile, employment rose by 53,000 in the three months to November – mainly due to a rise of 122,000 part-time jobs outweighing a 69,000 drop in full-time employment.
Despite the brightening outlook, economists urged caution. Vicky Redwood, UK economist at Capital Economics, says: “We still think that firms could undertake another round of cost-cutting early next year.
“Indeed, the fact that the rise in employment has been driven entirely by part-time workers (full time employment fell by 69,000 in October) suggests that firms remain nervous. A second leg downwards in the labour market remains a key risk for 2010.”
Archer adds that unemployment is now unlikely to reach to three million level previously feared, although it could still hit 2.75 million.
“Ongoing uncertainties and concerns over the strength and sustainability of any recovery are likely to encourage businesses to keep their labour forces as tight as possible in the near term at least,” he adds. “In addition, significant job cuts in the public sector could very well start in 2010 as part of the efforts to rein in public expenditure.”
The figures from the Office for National Statistics also showed an easing in the downward trend in pay growth. The annual growth of average earnings including bonuses rose to 1.6% in October, reversing September’s drop.
Philip Shaw, economist at Investec Securities, says the figures are something of a “puzzle” – especially as unemployment typically lags behind economic recovery.
“The 1.5% fall in employment over the past year has been relatively shallow given the depth of the downturn and even hours worked (which take into account the switch towards part‑time employment) have fallen by a reasonably modest 2.4%,” he adds.
He believes firms are hoarding labour in anticipation of the upturn: “If so, the other side of the coin is not quite so shiny in the sense that the pace of hiring may be slower than expected during the upswing.”