U.K. Unemployment Falls for a 16th Month to Three-Decade Low

U.K. Unemployment Falls for a 16th Month to Three-Decade Low

Feb. 13 (Bloomberg) -- U.K. unemployment fell for a 16th month to a three-decade low in January as economic growth led companies to add workers.

Claims for jobless benefits dropped 10,800 from December to 794,600, the lowest since June 1975, the Office for National Statistics said today in London. The drop was more than double the 5,000 median forecast in a Bloomberg News survey of 28 economists. The jobless rate stayed at 2.5 percent.

Economists expect job creation to falter this year as the economy slows from its fastest expansion since 2004. The Bank of England cut interest rates this month to shield the economy after a jump in credit costs. The central bank will publish new forecasts for growth and inflation today.

``The labor market still looks firm,'' said George Johns, an economist at Barclays Capital in London, before the report. ``We're seeing the lagged effects of a strong economy, but as growth slows we'll see claims pick up. That will be gradual, so the bank won't be aggressive with rate cuts.''

Growth may slow to 2 percent this year from 3.1 percent in 2007, the central bank predicted in November. The economy grew 0.6 percent in the fourth quarter, the weakest pace in more than a year.

The Bank of England will update its forecasts at 10:30 a.m. in London when Governor Mervyn King presents the quarterly inflation report.

A deteriorating economic outlook may make it harder for workers to demand higher pay to compensate for rising food and energy bills.

Average Earnings

Average earnings including bonuses rose an annual 3.8 percent in the three months through December, down from a 4 percent pace in November, the statistics office said today. Without bonuses, wage growth quickened to 3.7 percent from 3.6 percent.

``The bank's clearly a bit worried about pay, but the economy won't grow fast enough to sustain the number of workers,'' said Alan Clarke, an economist at BNP Paribas SA in London. ``Unemployment should go up.''

Economic growth will slow to 1.8 percent this year, matching the worst performance since 1992, and jobless claims will reach 910,000, according to the average of independent forecasts compiled by the Treasury last month.

British Airways Plc, Europe's third-biggest carrier, is cutting jobs to increase profits. Scottish & Newcastle Plc, the U.K.'s largest beermaker, said Feb. 12 it plans to close a southern England brewery to cut costs, putting 362 jobs at risk.

Housing Slump

Fewer jobs may drain consumer demand as house prices fall. The U.K. housing slump deepened in January to the worst since the British economy emerged from its last recession in 1992, the Royal Institution of Chartered Surveyors said in a separate report today.

The unemployment rate as measured by International Labor Organization standards fell to 5.2 percent in the quarter through December, the lowest since the three months ended January 2006.

The rate compares with 7.2 percent in the 13-nation euro region, 4.9 percent in the U.S. and 3.8 percent in Japan. The number of unemployed fell 61,000, the biggest drop since January 2003. It stood at 1.6 million, the lowest since March 2006.

Employment rose 175,000 in the fourth quarter, the most in more than a decade, to a record 29.4 million, the statistics office said today.

The 16 straight monthly declines in jobless claims is the longest stretch since the 20 months through January 2005, the statistics office said. In December, claims fell 8,700 rather than the 6,400 estimated last month.

The central bank lowered the rate to 5.25 percent this month, the second reduction in three months. Economists expect the main rate to reach 4.5 percent by the end of the year, according to the median of 44 economists in a Bloomberg survey on Feb. 1.

BLOOMBERG