Sterling fell and gilt futures rose on the figures which suggested Britain’s labor market was deteriorating even before the bulk of the government’s austerity measures take effect, while subdued wage growth suggested domestic inflation impulses are well under control.
The Office for National Statistics said the number of people claiming jobless benefit rose by 2,400 last month, following successive falls in the previous three months. Analysts had forecast a fall of 3,000.
The number of people without a job on the wider ILO measure rose by 44,000 in the three months to December to 2.49 million.
Average weekly earnings growth slowed to just 1.8 percent in the three months to December, less than half the rate of inflation, something that may reassure Bank of England policy makers worried about second-round inflation effects.
“This still provides a powerful reason to believe that inflation will fall back sharply in the medium-term,” said Vicky Redwood at Capital Economics. “But it may not stop the MPC from presenting a more hawkish view in the Inflation Report.”
With consumer price inflation running at 4 percent, double the central bank’s target, pressure is mounting on the BoE to act. It will present its quarterly inflation report shortly.
In a letter to the government to explain why inflation remained so high, BoE Governor King on Tuesday said inflation was as likely to be above target as below it in two to three years’ time assuming interest rates rose as markets expected.
Analysts interpreted these comments as effectively endorsing market expectations of a May rate rise.
But with sharp government spending cuts only beginning to bite, the economy remains fragile.
British consumer confidence fell sharply in January to near its weakest level since early 2009, after a rise in sales tax dented shoppers’ willingness to spend, a survey by building society Nationwide showed on Wednesday.
Unemployment in the 16 to 24 age group rose to 965,000 in the three months to December, the highest since records began in 1992, leaving one in five young Britons not in education out of work.
The government said the figures showed the labor market was broadly stable but acknowledged concerns about the rising level of unemployment among the young.
“(This) is not a good story for UK activity and hence supportive of our view that interest rates may not rise as much as the market anticipates,” said James Knightley at ING.
