More jobs, smaller pay rises

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UNEMPLOYMENT fell by 49,000 last month - the biggest drop for four and a half years - to a 13-month low of 2,855,100.

Hopes of an interest rate cut to accompany this month's Budget were undimmed despite the good news from the Department of Employment. Falling unemployment has not yet triggered a rise in pay settlements to put upward pressure on inflation, currently running at 1.4 per cent. Average earnings grew by 3 per cent in the year to September, down from 3.25 per cent in the year to August.

Unemployment fell throughout Britain, but relatively little in London, the North and Northern Ireland. These regions have unemployment higher than the national average of 10.2 per cent. The department said the jobless total might be falling at an underlying rate of 12,000-15,000 a month.

'The combination of wage restraint and falling unemployment suggests that people are pricing themselves into jobs,' said David Hillier, of City firm NatWest Markets. But the City was sceptical about October's fall, noting that it was difficult to adjust for the number of people leaving unemployment for full-time education.

The number of people unemployed for a year or more was 10,000 lower in October than July at 1,071,000 - the first fall for three years. Nearly 1.6 million have been without work for six months. Manufacturing industry created 9,000 new jobs in September. The number of vacancies notified to JobCentres also increased to a two- and-a-half year high of 134,400.

Rolls-Royce, the aero-engine maker, injected a note of gloom, saying it would shed 1,000 jobs on top of 2,000 previously announced redundancies.

John Major told the Commons the unemployment figures were better than expected: 'We now have the opportunity of a long period of sustained growth with low inflation.'

David Hunt, Secretary of State for Employment, said that trade union reforms and the lifting of the legislative burden on employers had helped unemployment to turn round quickly, but added last night that structural unemployment over the developed world was still a 'great challenge'.

Reaffirming his credentials on the left of the party, Mr Hunt used the Rab Butler memorial lecture in Cambridge to imply there was a clear link between unemployment and crime: 'We have to . . .bring young people on board and give them motivation and the will to become full paid-up members of society . . .before they are blooded into the criminal fraternity.'

Bank of England figures meanwhile showed that the amount of money in circulation and in bank and building society accounts was increasing more quickly, pointing to continued recovery. Bank and building society lending rose by pounds 1.8bn and new mortgage commitments changed little.

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