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UPDATE 1-UK jobless total rises for first time in 6 mths

Published 12/15/2010, 05:22 AM
Updated 12/15/2010, 05:28 AM

* First rise in jobless total and jobless rate in 6 months

* Public spending cuts mean more pain ahead

* Pound falls, gilts rise as economic outlook questioned

By Christina Fincher and Peter Griffiths

LONDON, Dec 15 (Reuters) - The number of Britons out of work rose for the first time in six months in the three months to October, surprising analysts and raising doubts about the economy's resilience before big public spending cuts next year.

The Office for National Statistics said the number of people without a job on the internationally comparable ILO measure rose by 35,000 to more than 2.5 million in the three months to October. That was the first increase since the three months to April and the biggest since the first quarter of the year.

The jobless rate also rose for the first time in six months to 7.9 percent, confounding expectations for the rate to hold steady at 7.7 percent.

The pound fell and British government bond futures rose on the figures which contrasted with more upbeat activity data in recent weeks.

"The increase in joblessness is a bit of a standout and markets may focus on it as an example of what may happen in 2011," said Philip Shaw at Investec.

The narrower measure of people claiming unemployment benefit fell by 1,200 in November, less than half the fall expected, though this was mitigated by a revision showing a much bigger drop in claims than previously reported in October.

Analysts questioned whether the recovery was strong enough for the private sector to expand to fill the gap left by a shrinking state, as the government hopes.

Britain's independent fiscal watchdog has estimated that 330,000 public sector workers will lose their jobs over the next four years as the government takes unprecedented action to cut the fiscal deficit.

Bank of England Deputy Governor Charles Bean said earlier this week the central bank may need to inject more stimulus into the economy if growth showed clear signs of slowing, though data on Tuesday showing an unexpected rise in inflation may tie its hands.

Wage growth picked up slightly but remained well below inflation. Average weekly earnings growth including bonuses rose by 2.2 percent in the three months to October, the fastest rate since May. Excluding bonuses, earnings rose by 2.3 percent, the fastest rate since March 2009, but not a level that would worry the Bank of England.

Brian Hilliard at Societe Generale said Wednesday's wage figures were "an antidote" to the recent high inflation numbers.

"It's earnings growth that counts, and that's under control," he said. Consumer price inflation rose to a six-month high of 3.3 percent in November and looks set to rise even higher at the start of next year when VAT sales tax rises to 20 percent from 17.5 percent.

Retail price inflation, which has historically been the benchmark for many wage deals, is running even higher at 4.7 percent.

(Editing by Ruth Pitchford)

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