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British jobless rate rises, pay growth at record low

A man stands outside a state Job Centre employment office in Coalville, central England, December 14, 2011. REUTERS/Darren Staples
A man stands outside a state Job Centre employment office in Coalville, central England, December 14, 2011. REUTERS/Darren Staples

By Olesya Dmitracova and David Milliken

LONDON (Reuters) - Britain's unemployment rate rose in February and pay excluding bonuses posted the smallest increase on record, suggesting that cracks are starting to show in the so far surprisingly resilient labor market.

The Office for National Statistics said on Wednesday that the main jobless rate rose to 7.9 percent in the three months ending in February - the highest rate since the three months to August 2012, when it was also 7.9 percent.

The Bank of England, meanwhile, indicated that it remained some way from giving the UK's flatling economy additional help to create jobs.

Minutes of the bank's April policy meeting showed it remained split this month on whether to restart asset purchases to boost economic growth, with no sign that divisions between policymakers are narrowing.

The euro hit a one-month high against sterling after the jobs data put pressure on the British currency.

"A lot of the froth and really good news we had over the last year on jobs is becoming exhausted, which shouldn't be a surprise when there is not much growth around," said Alan Clarke, economist at Scotiabank.

Britain's employment growth in the past year has puzzled policymakers and raised questions over how much longer its relative strength can be sustained without a pick-up in the economy.

One way employers have been able to keep staff is by limiting pay rises.

The ONS said average weekly earnings growth including bonuses slowed to 0.8 percent in the three months through February compared with a year earlier. Excluding bonuses, pay grew by 1.0 percent - the smallest rise since records began in 2001.

The ONS said the annual growth in weekly wages excluding bonuses has been below price inflation since late 2009, squeezing vital consumer spending.

Worries about inflation are also weighing on central bankers.

Those opposed to more asset purchases this month said for the first time that they were concerned more stimulus could exacerbate a recent upward drift in inflation expectations, as well as weaken sterling further.

In another sign of pessimism, the Bank of England minutes said that the Funding for Lending Scheme - which the authorities launched in the middle of last year to boost bank lending - was having only a small impact so far on increasing lending and had a diminishing impact on improving credit conditions.

Policymakers said they were open to expanding it further.

In the meantime, prospects for many jobseekers look precarious.

Although the number of people claiming jobless benefit fell by 7,000 last month, the number of those without a job on the wider ILO measure grew by 70,000 in the three months ending in February to 2.563 million.

(Editing by Jeremy Gaunt)

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