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Tiny drop in unemployment sparks job market fears

Experts warned the UK jobs market was "on the turn" today after official figures showed a lower-than-expected drop in unemployment.

The paltry decline in the number of jobless - down 8,000 in the three months to July to 2.47 million - overshadowed a record surge in employment.

A surprise increase in the closely-watched Jobseeker's Allowance claimant count also reinforced fears of a relapse in the jobs recovery.

Data from the Office for National Statistics (ONS) revealed 2,300 more people joined the dole queue last month, taking the total to 1.47 million - the first increase since January.

Economists said the figures cast doubts over whether the private sector was strong enough to compensate for the 600,000 jobs expected to go over the next five years under the Government's imminent spending review.

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said: "The August rise in the claimant count, while small, was the first increase for seven months and provides further evidence that the labour market is on the turn.

"This is particularly concerning given that this comes before the public spending cuts have really got under way."

While the ONS figures showed the largest rise in employment since records began in the three months to July, much of this rise was accounted for by students taking on part-time work rather than those on benefits finding jobs.

The ONS said the number of employed workers soared by 286,000 to 29.2 million, although this had little impact on the level of unemployment. The rate of unemployment stayed static at 7.8%.

Those in part-time work increased by 166,000 quarter-on-quarter to 7.9 million in the three months to July suggesting many are still struggling to secure full-time work.

However, the number of full-time workers also increased, by 121,000 to 21.2 million.

Full-time students in employment rose by 47,000 in the three months to July, while students classed as economically inactive fell by 62,000.

Vicky Redwood of Capital Economics said "cracks are appearing in the recovery".

"Even if the labour market holds up in the near-term, this is unlikely to last once the public sector job cuts start in earnest," she added.

The Government will announce its spending review next month in what is expected to deal a devastating blow to the public sector workforce.

It is hoped the private sector will pick up the slack, but today's mixed figures have shown a fragile jobs recovery.

The administration of social housing firm Connaught last week, which has caused 1,100 redundancies so far, has already highlighted the knock-on effect of the spending cuts on the private sector.

The number of long-term unemployed is another worry, with those out of work for more than 12 months up 16,000 to 797,000 in the three months to July, according to the ONS.

Older workers out of a job for more than two years rose sharply again, up 15% quarter-on-quarter in the three months to July, which is likely to spark further concerns over prospects for over-50s jobseekers.

There was some modest good news on wages in the data, which showed a 1.5% rise in pay in the year to July, up from 1.3% previously.

Employment minister Chris Grayling said: "Today's jump in employment, driven by the private sector, is good news but it doesn't disguise the fact that the system the Government inherited is failing to get people on welfare into these jobs.

"It is neither fair for the nearly five million people on benefits, nor the taxpayer who supports them."

Most economists are predicting unemployment will start to rise again by the end of the year and throughout 2011.

Economist Howard Archer, of IHS Global Insight, forecasts the number of jobless will peak at 2.85 million in the first half of 2012, with the unemployment rate reaching 9%.

Brendan Barber, general secretary of the TUC, which is holding its annual conference today, said: "What is clear is that the economy is still extremely fragile."

"The best the Government can expect is a largely jobless recovery. At worst the economy could go into reverse."