Tax fears hit jobless figures: Companies halt recruitment - Consumers curb spending - City gambles on rate cut

A SURPRISE jump in unemployment and unexpectedly weak high street spending figures yesterday suggested that the economy may be faltering as consumers and employers tighten their belts ahead of April's tax increases.

The number of people unemployed and claiming benefit rose by 106,572 last month, according to the Department of Employment. About 91,000 of that rise is thought normal for the time of year, so the seasonally adjusted total rose by 15,500 to 2,787,600.

Unemployment rose in all parts of the United Kingdom except Northern Ireland and the West Midlands, leaving just under one in 10 of the labour force without work and claiming benefit. The number of people unemployed for a year or more rose by 11,000 to 1,082,000 in the three months to January.

Share prices rose as City dealers gambled that Kenneth Clarke, the Chancellor of the Exchequer, will have to cut interest rates again to keep the recovery going, especially as last week's quarter-point cut failed to trigger reductions in mortgage rates.

However, Mr Clarke insisted he was 'quite confident' that the recovery was still on track. Gordon Brown, his Labour opposite number, said: 'Tax rises are cutting demand, threatening jobs, increasing prices and checking recovery.'

Hopes of another interest rate cut were also buoyed by January's inflation figures, which came in below the level expected by the Bank of England. The annual rate of increase in retail prices rose from 1.9 per cent in December to 2.5 per cent, the highest for more than a year.

High street spending last month was a little weaker than the City expected, although not as bad as a survey of retailers by the Confederation of British Industry had suggested earlier in the week. The volume of sales rose by 0.6 per cent in January, following an unexpected drop in the previous month.

But high street trade has been revived only with dramatic price cutting in the January sales. Clothing and footwear prices were cut on average by 5.1 per cent last month, a drop not exceeded since February 1921. Household goods also registered their biggest price fall on record. Big store chains have managed to lure customers from local shops because they can afford to offer better bargains.

Hugh Clark, a director of the British Retail Consortium, which represents shop and store owners, said: 'Retailers are concerned that consumers may have started to tighten their spending in the light of pending tax increases and the uncertainty of wage increases in this time of low inflation.'

If last month's rise in unemployment turns out to be more than a blip, it could exacerbate the threat to high street spending from tax increases. But the Department of Employment insisted that the jobless total remained on a downward trend of about 20,000 a month.

Last month's raw increase was so out of line with recent falls that the department increased its estimate of the seasonal increase in January from 67,000 to 91,000. Had it not done so the seasonally adjusted jobless total would have risen by almost 40,000.

The Department said that the rise in the jobless total was a 'rather exceptional figure', probably explained by the fact that January was, unusually, a five-week month for the compilation of statistics. This meant it was depressed by an extra week of low job recruitment that would normally have been included in December's figures.

The number of people leaving the dole queue fell sharply, but there was little change in the number joining - despite the shedding of a further 11,000 factory jobs in December. The number of new vacancies notified to JobCentres also dropped slightly in the month.

John Philpott, of the independent Employment Policy Institute, said there were a number of possible explanations but that employers probably felt there was too little demand to merit taking on new staff.

Pressure on prices, page 35

View from City Road, page 36