Unemployment Claimant Count Rises Again

(Guardian) – GORDON BROWN’S EFFORTS to win the next general election received a blow today after official figures showed that the number of Britons claiming unemployment benefit rose unexpectedly in January to the highest level since Labour came to power.

The Office for National Statistics (ONS) said that the number of people claiming jobseeker’s allowance (JSA) rose by 23,500 in January, compared with a fall of 9,600 in December. This is the largest monthly rise in the claimant count since last July, and takes the total number of people receiving unemployment benefit to 1.64 million, the highest figure since April 1997.

Economists had expected the claimant count to fall by 10,000 in January as the UK economy struggled out of recession, after falling in November and December.

The ILO – the wider measure of unemployment – fell by 3,000 in the three months to December to 2.457 million. The jobless rate now stands at 7.8%.

Howard Archer, economist at IHS Global Insight, said the rise in the claimant count was a “reality check” that dashed any hopes that unemployment had peaked.

“The economy is just not strong enough at this stage to prevent further job losses and the fall in unemployment late in 2009 had masked the fact that full-time employment was still falling appreciably,” said Archer.

Ross Walker, an economist at RBS Financial Markets, agreed.

“The fact that the claimant count was falling in recent months was the huge surprise. The fact that we have got a rise is not particularly surprising. It seems to fit more with the underlying reality,” Walker said.

Yvette Cooper, the work and pensions secretary, said that the government’s actions have helped to keep the unemployment total almost half a million lower than the National Audit Office predicted last year.

“We always knew it would be difficult in the new year, and said that we expected unemployment to keep rising,” Cooper told the BBC.

Separately, the ONS said yesterday that underemployment has risen sharply during the recession, according to separate ONS figures.

About 2.8 million people were officially underemployed – defined as working fewer hours than they want to – between July and September 2009, which equates to nearly 10% of those in employment. The number went up by 700,000 from a year earlier. This is in addition to the 2.6 million out of a job.

Bank Raises QE Total To £175 Billion

(Reuters) – THE BANK OF ENGLAND took a far bigger step than expected to boost the recession-hit economy on Thursday, stunning markets by expanding its quantitative easing plan to £175 billion from £125 billion.

The central bank said Britain’s downturn appeared to have been deeper than previously thought and, while the trough in output was near and some recovery was on the way, tight credit conditions would remain a considerable drag.

The decision shocked many investors who had been starting to take a brighter view of the British economy, especially after recent economic data suggested the year-long, steep recession may have ended in the third quarter.

Economists had been split on whether the Bank would increase its quantitative easing scheme, completed last week, or pause to gauge what impact it was having. Few had forecast an expansion above the original government-set limit of £150 billion.

‘This is a huge surprise,’ said Ross Walker, UK economist at Royal Bank of Scotland. ‘All the rhetoric seemed to point to not doing very much more, even up to 150 (billion) seemed odds-against after the better (economic) surveys.’

The pound fell more than a cent against the dollar and gilt futures rocketed higher after the Bank’s decision, which also saw interest rates kept at a record low of 0.5%.

Markets will now await the central bank’s quarterly inflation forecasts, due next Wednesday, for a further explanation of the decision.

‘I would not want to say this is the end of it. If they decide in three months’ time that the economy still needs more stimulus they might actually do more,’ said Jonathan Loynes, chief UK economist at Capital Economics.

Median forecasts from a snap Reuters poll of around 50 analysts suggest the Bank will cap its quantitative easing (QE) programme at £175 billion, although a third said it could expand it further.

On a positive note, the Bank pointed to a stabilisation in Britain’s main export markets, an easing in financial markets and bank funding, and an improving consumer and business mood.

But analysts say Thursday’s move suggests the Bank’s new forecasts will still show inflation undershooting its two percent target in the medium term due to the deeper than predicted recession and big headwinds to recovery.

Chancellor Alistair Darling, approving the expanded QE programme, said raising the limit would help the Bank to avoid such an undershoot.

There have been concerns policymakers’ unprecedented efforts to boost money flows through the economy by buying bonds with newly-created cash may not be filtering down to credit-starved businesses quickly enough.

‘As has always been clear, it will take some time for the full effect of the programme of QE to have its impact,’ Treasury minister Stephen Timms told Sky News.

The Bank, which says it could take about 9 months for the impact of QE to become visible, said the big stimulus from a weaker pound and monetary and fiscal policy was still working its way through; but lending to firms had actually fallen.

Analysts say it is really too early to tell if QE is working yet; but, with banks busy repairing balance sheets after the worst financial crisis in living memory, policymakers will be extra wary of any signs of a prolonged lending blockage.

For now, the central bank will continue its programme of government bond purchases — started in March — for another three months, with an expanded range of gilt maturities. The scale of it will be kept under review.

The Bank had faced a dilemma at its August 5-6 policy meeting. Halting the QE process too early could prolong Britain’s worst recession in decades, but doing too much risks setting the stage for an inflation surge in several years time.

… (Telegraph, 10/08/2009) – UK risks a Japan-style lost decade, BoE will warn

… (12/08/2009) – Bank Predicts CPI Below Target In 2 Years