Biggest rise in jobless total in over a decade

Britain's ironclad labour market may finally be showing signs of rust, according to government figures showing unemployment surged last month at the fastest rate for more than a decade.

Britain's ironclad labour market may finally be showing signs of rust, according to government figures showing unemployment surged last month at the fastest rate for more than a decade.

The number of people claiming unemployment benefits jumped by 9,700 to 950,800 in May, the Office for National Statisticssaid. It was the biggest increase since December 1992.

The ONS said the claimant count had risen by 18,400 over four months, prompting speculation the labour market had finally turned. "The claimant count has been stable for some time but may now have started to increase," Allan Flowers, a labour market statistician at the ONS, said.

The preferred unemployment rate, which includes those out of work but not claiming benefit, also increased. It rose 36,000, adding to anecdotal evidence that companies are under growing financial pressure. The rise in the claimant count was driven by a drop in the number of people finding new jobs.

The number of full-time workers fell by 69,000 over the three months to April. The labour market's resilience since the global recession that started in spring 2001 - since when the claimant count has fallen 30,000 and employment risen by 420,000 - has baffled analysts. Jonathan Loynes, the chief UK economist at Capital Economics, said he had expected unemployment to rise as firms had hoarded labour in the hope of a quick recovery. "Today's figures are the strongest signal yet that this process might have begun," he said.

Meanwhile, pay pressures weakened further. Growth in average earnings over the three months to April slowed to 3.2 per cent from March's 3.4 per cent. This is below the 4.5 per cent the Bank of England sees as compatible with hitting its inflation target and raised hopes of an interest rate cut.

"These data will reinforce sentiment in the markets that another cut is imminent," said Ross Walker, at Royal Bank of Scotland. However, the ONS and several City economists warned it was too early to say whether May's figures were a new trend or a blip. The British Chambers of Commerce said the "worrying" might be the first concrete evidence of the impact of the hike in national insurance contributions.

David Frost, its director general, said: "The hoped-for recovery will not materialise without government action on reducing tax and regulations on business."

Opposition parties seized on the figures. David Willetts, the Conservative spokesman on work and pensions, said: "This shows the Government's welfare to work schemes and the new Job Centre Plus offices are not having the impact that ministers claim."