Market View: Unemployment set to rise ‘much further’

UK unemployment rose by 118,000 to 2.68m in the three months to November 2011, the highest level for 17 years, data from the Office of National Statistics has shown.

According to Ons, the unemployment rate stood at 8.4 per cent of the economically active population at the end of November, up 0.3 per cent on the previous quarter. The number of unemployed 16 to 24-year-olds also increased by 52,000 over the quarter to a little more than 1m, the highest since records began in 1992.

Adding to the negative sentiment on jobs, the claimant count for jobseekers allowance last month increased by 1,200 to 1.6m in December.

Ons data also show that total pay, including bonuses, rose by 1.9 per cent on a year earlier, down 0.2 on the three months to October 2011, with both the private and public sectors showing lower pay growth. Regular pay, excluding bonuses, also increased by 1.9 per cent on a year earlier, up 0.1 on the three months to October 2011.

Ben May, European economist at Capital Economics, said: “We expect unemployment to rise much further. The recent slowdown in the wider economy is yet to have its full impact on the labour market and survey evidence suggests that firms plan to lay off workers at a faster pace in the coming months, while public sector employment has further to fall.

“Meanwhile, the recent downward trend in employment is keeping a lid on pay growth, with the headline rate of average earnings growth just 1.9 per cent in November.”

Nick O’Reilly, a business recovery specialist at the chartered accountants HW Fisher & Company, warned that young people are felling the pinch more than most, with the unemployment rate for 16 to 24-year-olds “at its highest” since comparable records began 20 years ago.

He said: “The government has been careful to drip feed in the public sector cuts and that has blunted the pain somewhat. But there’s no escaping the uncomfortable truth - that the SME sector cannot, and will not, ride to the rescue of the newly jobless public sector workers.”

Mr O’Reilly highlighted that a recent poll by the Federation of Small Businesses found that business confidence nosedived at the end of 2011 and that one in 13 firms plans to shed staff in the coming months.

He said: “Even the most optimistic of bosses see 2012 as a year to batten down the hatches and just get by. Hiring new staff is seldom on anyone’s agenda.

“Despite their protests to the contrary, the banks simply aren’t lending enough to struggling, but still solvent, businesses.

“Notwithstanding the danger of businesses talking themselves into a new recession, the fact is that there’s a short leap from plunging confidence to plunging levels of employment. My fear is that the number of unemployed will only go one way - and that’s up.”