Unemployment level at highest since 2000

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Unemployment rose to a six-year high in May as companies were unable to find jobs for the latest influx of people joining the labour market.

The number of people looking for work rose by 90,000 in the three months to 1.65 million, an increase of 224,000 over the past 12 months. The number claiming benefits rose to 956,600.

Employment rose by an almost identical amount - 223,000 - but the total number of people of working age has risen by 447,000 over the past year.

This pushed the unemployment rate from 5.1 per cent in April to 5.4 in May, the highest rate since October 2000, the Office for National Statistics said.

John Butler, the chief economist at HSBC, said: "The labour market is loosening and on our estimates loosening at its fastest pace since the early 1990s."

The figures showed the pool of available workers was being filled by a drop in the number of long-term sick, an increase in pensioners rejoining the labour market and an inflow of migrants from the "new" EU states.

Economic inactivity fell to a 14-year low of 21.1 per cent after a fall of 69,000 in the number of people declaring themselves long-term sick over the past year.

Meanwhile, an extra 80,000 people over state pension age - an annual rise of 7.6 per cent - have joined the workforce over the past year.

The slack in the labour market appeared to have kept the lid on pay demands, analysts said. The headline rate of average earnings growth fell to 4.1 per cent in May from 4.4 in April.

However, stripping out bonus payments, the figures appeared to show a rise in pay levels. Excluding bonuses, average earnings rose to 3.9 per cent from 3.6 after a jump in the private sector from 3.9 per cent to an 18-month high of 4.3. Meanwhile, the number of manufacturing jobs fell 112,000 in the year to May to a record low of 3.05 million.