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A stark picture of a weakening British economy was underscored with the release on Wednesday of jobs data that showed the biggest one-month jump in unemployment for more than 17 years.
The news follows a spate of data over the past two weeks that showed falling house prices, slumping car sales, dropping levels of industrial production and rising inflation.
The UK consumer price index this week hit a higher-than-expected 5.2 per cent, fuelled mostly by sharp increases in the prices of utilities that fed into economic data more quickly than had been expected.
The latest data from the Office for National Statistics showed a 0.5 per cent rise in unemployment, to 5.7 per cent, for the three months to the end of August.
That predates the latest turmoil in financial markets which has forced companies to shed more jobs. The total number of people in employment fell by 122,000 to 29.41m in the quarter to the end of August, the biggest fall since 1993.
“To summarise – these data are grim,” said Alan Clarke, economist at BNP Paribas, the bank. “Employment is falling off a cliff and it is still early days in this slowdown.”
Mr Clarke said that the latest data helped to make a strong case for further cuts in interest rates by the Bank of England’s monetary policy committee, despite the sharp rise in CPI.
Economists generally consider employment to be one of the last indicators to register trends in growth.
Companies tend to “hoard” labour rather than shed staff when activity slows, knowing that skilled workers can be hard to replace.
George Johns, economist at Barclays Capital, said that employers could no longer avoid the conclusion that the UK might already be in recession.
“We see this picking up even more,” Mr Johns said, adding that his own forecast predicted unemployment would hit 7 per cent by the end of 2009.
Michael Saunders, economist at Citi, said the latest jobs data had worrying implications for the slumping UK housing market, with unemployment making it ever more difficult for homeowners to keep up mortgage payments.
With household consumption at 60 per cent to 65 per cent of UK GDP, a sharp rise in unemployment has stark implications. Among these are rising repossession rates on homes which are already worth less than the outstanding mortgage.
“This is yet another reason for UK house prices to go on falling and for consumer spending to fall off a cliff,” Mr Saunders said. “It’s part of the vicious cycle on the way down.”
Rising unemployment has damped wage growth in spite of rising inflation. Annual average earnings, including bonuses, rose at a rate of 3.4 per cent in the three months to the end of August, down 0.1 percentage points on the previous three months. Average earnings excluding bonuses also fell by 0.1 percentage points to 3.6 per cent.