The spectre of rising unemployment was raised yesterday by figures showing the number of people out of work is increasing at the fastest rate since the end of the 1990s recession.
The statistics pointed to a softening labour market, reviving the prospect that interest rates will fall again in the new year.
For months, Mervyn King, the Governor of the Bank of England, has been watching nervously for signs of so-called "second round" inflation from recent record highs. But his fears were dampened by the weakest rise in British pay packets in more than two years in the three months to October, according to the Office for National Statistics.
Howard Archer, at Global Insight, said: "If the initial pay settlements in 2006 remain contained, it will go a long way to opening the door for an interest rate cut as early as February."
The jobless tally stood at 1.49 million in the three months to October. The rise of 72,000 in the quarter was the biggest since February 1992, while the number claiming unemployment benefit rose in October for the 10th month in a row, again painting a worse picture than at any time since the end of the last recession.
John Butler, a UK economist at HSBC, warned unemployment was the "most likely trigger to weaker consumer spending".
The annual growth rate in average earnings - including wages, salaries and bonuses - slumped to 3.6 per cent in the quarter to October, from 4.1 per cent during the previous three months, reflecting lower bonuses in the financial sector. The ONS said the claimant count rose 10,500 in November, giving a rate of 2.9 per cent. That was more than expected and means that nearly 90,000 have have joined the dole queue this year.Reuse content