The number of people claiming unemployment benefit increased in February for the first time in two and a half years, delivering a blow to Chancellor Kenneth Clarke's hopes that consumers would soon begin to feel the benefits of economic recovery. But low growth in earnings in the year to January, the key month for pay settlements, yesterday encouraged hopes of further interest rate cuts.
The Government shrugged off last month's increase in the number of claimants as a one-off fluctuation around the downward trend, and some City economists agreed that unemployment would resume its decline. Kevin Darlington at brokers Hoare Govett said: ``The figures will not yet reflect any significant impact from the recent spate of rate cuts.''
On the other hand, some took a glummer view of the outlook. ``The number is not a fluke, it reflects the weakness in the economy. There is a very respectable argument that interest rates must fall further,'' said Neil MacKinnon, chief economist at Citibank.
Michael Meacher, Labour's employment spokesman, commented: ``The unemployment trend shows that job insecurity is now the central fact of out economy.''
Unemployment climbed by 6,800 to 2.21 million in February, after dropping by 28,300 in January. The news dashed expectations that joblessness would have fallen for the 30th month running, although the Central Statistical Office said industrial action at benefit offices might partly account for the rise. Official statisticians estimated the trend at a fall of 10,000 a month.
The rise in joblessness fell entirely on men - female unemployment declined slightly.
The rise was also concentrated in the North and Midlands, which had seen the biggest falls in January. But unemployment increased in all regions apart from the South-east, East Anglia and Northern Ireland.
Northern Irish unemployment was the lowest for nearly 15 years, although its jobless rate of 11.4 per cent remains the highest in the UK.
Yesterday's figures provided further evidence of recent weakness, especially in industry. Employment in manufacturing dived by 27,000 in January, nearly wiping out the increase in the final quarter of last year. David Walton, UK economist at Goldman Sachs, said: ``A few months of rising unemployment are likely as firms, particularly in manufacturing, shed labour in response to below-trend growth in output.''
In addition, the number of vacancies at JobCentres - about a third of the total - fell for the third month running, down by 400 to 186,900.
The combination of stable earnings growth and a fall in employment meant annual growth of unit labour costs in manufacturing fell sharply, from 5.0 per cent to 3.0 per cent in January.
Sterling weakened against the German mark in reaction to the figures. Renewed concerns about tensions within the Government over Europe and the UK political outlook also contributed. The pound ended just over half a pfennig lower at DM2.2424.
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