Earnings pick-up mars dip in unemployment

The number of people claiming unemployment benefit fell to its lowest for five years in April, while earnings growth picked up in February and March.

The Government hailed the fall of 3,200 in the official level of unemployment to 2,183,500 last month as further evidence of the success of its deregulation of the labour market.

Employment Minister Eric Forth said: "We have more of our people in jobs and fewer out of work than any other European country."

But Michael Meacher, his Labour Party counterpart, said: "These figures show the decline in unemployment is rapidly petering out." The BSE crisis would lead to more job losses in the next few months, he said.

Even though the Treasury said the pay figures were consistent with a low-inflation outlook, the financial markets focused on the unexpected rise in underlying average earnings growth. It was revised up to 3.75 per cent in February and the same in March.

Traders in the futures markets are now betting that base rates will climb half a point to 6.5 per cent by the end of the year. Their concern over yesterday's figures follows the Bank of England's signal in its Inflation Report on Tuesday that longer-term inflation risks meant the cost of borrowing might have to rise.

Unemployment fell by far less than its average of 13,500 in the past six months, but official statisticians said it remained on a downward trend of about 10,000 a month. A variety of special factors meant last month's fall might have been understated.

The proportion out of work for more than a year fell to 36 per cent of the claimant total, or 806,300 people. This was the lowest for three years. Unemployment amongst the under-24s fell by 64,000 in the year to April.

The number of claimants rose in six regions of the UK and fell in five, in a possible early warning that the north-south divide might re-open. The biggest drop by far was a decline of 6,000 in the South-east.

The number of vacancies at JobCentres increased for the third month running. Some City analysts were also concerned about the upturn in average earnings growth. Underlying earnings have picked up in manufacturing and services since the new year, reflecting higher settlements and bigger bonuses in financial services. However, others said that increases below about 5 per cent did not pose an inflationary threat.