Wednesday, September 14, 2005

European Economies: U.K. Jobless Claims Increased in August

U.K. jobless claims rose for a seventh month in August, the longest streak in almost 13 years, as slowing economic growth prompted companies to shed workers.
The number of people applying for jobless benefits increased by 1,600 to 866,200, following a revised gain of 1,400 in the prior month, the Office for National Statistics said in London today. The rate was unchanged at 2.8 percent, in line with the median forecast of 33 economists in a Bloomberg survey.
Slowing consumer spending and a 46 percent surge in crude oil prices this year are prompting companies such as Kingfisher Plc, owner of the nation's biggest home-improvement retailer, to cut jobs. On Aug. 10 the central bank lowered its 2005 economic growth forecast to 2 percent from the 2.5 percent, a week after reducing interest rates for the first time in two years.
``Jobs are likely to be increasingly under threat'' as higher energy prices compress profit margins, said James Knightley, an economist at ING Financial Markets in London, who predicts further interest-rate cuts in November and February. ``The risk is that the longer the U.K. economy stays soft the more likely it is that the unemployment level will increase more rapidly.''
Record employment spurred 52 quarters of expansion and helped Prime Minister Tony Blair win a third term in office in May. The jobless rate of 4.7 percent compares with the 8.6 percent in the dozen countries that share the euro.
Gate Gourmet
Consumer spending, the engine of two-thirds of the economy, has helped Britain outpace the economy of the dozen nations that share the euro for the past five years. A deceleration in household spending pulled annual economic growth to 1.8 percent in the second quarter, the slowest since the first three months of 2002, government statistics showed on Aug. 26.
The impact of the slowdown is being felt at consumer-related businesses. William Morrison Supermarkets Plc, Britain's fourth- biggest food retailer, is planning to shut three distribution centers with the loss of 2,500 jobs, the GMB union said Sept. 11. The company is reviewing its depot operations and ``no conclusions have been made,'' Gillian Hall, a Morrison spokeswoman, said the same day.
Kingfisher said Sept. 6 that it will cut 400 jobs as sales growth slows. Gate Gourmet, which supplies food to British Airways Plc at London Heathrow airport, fired 670 employees on Aug. 10, prompting a two-day strike by British Airways workers. The company, owned by U.S. buyout firm Texas Pacific Group, reached agreement on a process to eliminate positions with its U.K. union on Sept. 9.
Carmaker Collapse
In the three months to July, some 144,000 people said they were made redundant, up 15,000 from the previous three months and the biggest jump since the period ended May 2004, the statistics office said today.
``The economy is growing at a significantly weaker pace than in 2003 and 2004,'' said Trevor Williams, an economist at Lloyds TSB, in London in a telephone interview. ``This is a soft report that supports lower interest rates.''
Manufacturers are also reducing staff as record oil prices increase costs. Factories shed 95,000 jobs in the quarter through June compared with a year earlier, leaving an average 3.19 million manufacturing jobs, the fewest since records began in 1978, according to government figures. MG Rover Group Ltd., Britain's last volume carmaker, collapsed on April 8, with the loss of 5,000 jobs.
John Major
The last time jobless claims grew consecutively for a longer period was in the 31 months through December 1992, when Conservative Prime Minister John Major was in power. The economy contracted for five straight quarters through September 1991, pushing unemployment up towards 3 million over the following year, compared with only 1.42 million now.
``Unemployment is rising but it's still at a very low level,'' said James Carrick, an economist at ABN Amro in London, before the report. ``The Bank of England will cut rates again, but it will hold off until next May.''
The central bank reduced its benchmark rate by a quarter point to 4.5 percent on Aug. 4, the first time in two years, as growth slowed in the first half. Investors have pared their bets of another rate cut this year. The implied rate on the December interest-rate futures contract has risen from 4.2 percent on July 7, the lowest this year.
The slowdown in labor demand is keeping a lid on wages, even as higher oil prices pushed up the inflation rate. Excluding bonuses, incomes grew 3.9 percent in the three months through July, down from 4 percent in the prior period, and the slowest rate of wage growth since February 2004. Including bonuses, incomes grew 4.2 percent in the three months through July, up from 4.1 percent the prior month.
Blair and Brown
Blair and Chancellor of the Exchequer Gordon Brown may be damping the labor market through their own attempts to control government hiring. In July, Brown pledged last year to reduce the size of the public sector workforce, in part by shedding 84,150 civil service jobs.
The rise in unemployment claims over the past half year may also have been the result of the potential labor force growing faster than the number of jobs available as inward migration increases and more school leavers seek work, said Carrick.
The statistics office said today that while the trend in unemployment is still rising, the rate of gains is easing.
The pound was higher against the dollar at $1.8258 as of 12:30 a.m. in London, compared with $1.8232 before the report. The implied rate on the interest-rate future maturing in December was 4.48 percent, down from 4.49 percent at yesterday's close.


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