UK unemployment continues to climb

UK unemployment rose by 48,000 to 2.67 million in the three months to December, official figures have shown.

The unemployment rate was 8.4%, the Office for National Statistics said, the highest for 16 years.

The number of young people without a job rose 22,000 to 1.04m, taking the unemployment rate for 16- to 24-year-olds to 22.2%.

The number of people claiming Jobseeker's Allowance in January increased by 6,900 to 1.6 million.

While the unemployment rate is now at its highest since 1995, the number of job vacancies rose to 476,000 in the three months to January.

Lord Freud, a work and pensions minister, told BBC News: "This clearly shows we are by no means out of the woods yet."

"But it is quite a mixed picture. There are signs of stability. The inactivity level is coming down," he said.

Labour's shadow work and pensions secretary, Liam Byrne, said it was clear government policy was not working.

"Today's figures make for grim reading for the millions of squeezed families desperate for good news on the economy.

"With unemployment at its highest rate since 1995 and long term youth unemployment doubling in the last year, ministers must now get a grip," he said.

Contradictory trends

Despite the continued rise in unemployment, the proportion of the workforce in paid work also rose.

The number of people in jobs went up by 60,000 in the last three months the year to 29,130,000.

This meant the employment rate rose by 0.1 percentage points in the three months to December to 70.3%, although this rate was still 0.2 percentage points lower than a year ago.

The apparent contradiction is explained by the fact that the number of people classified as economically inactive has dropped.

Their number fell by 78,000 to 9.29 million.

This included a drop in the number of people categorised as long term sick or retired, who went back into the workforce.

Howard Archer of IHS Global Insight said overall the figures indicated that worsening employment outlook had eased recently.

"[This] supports hopes that the economy will return to modest growth in the first quarter and avoid recession," he said.

"Admittedly claimant count unemployment rose at a modestly increased rate of 6,900 in January to a two-year high of 1.605m but this is well down on the increases seen a few months ago."

Earnings squeezed

The ONS data also showed that average earnings increased by 2% in the year to December, unchanged from the previous month.

That figure lags well below the rate of inflation and indicates a continued squeeze on spending power.

Earlier this week, official figures showed the Consumer Prices Index (CPI) measure of inflation fell to 3.6% in January, from 4.2% in December.

Vicky Redwood, economist at Capital Economics, said: "We continue to expect unemployment to rise much further in response to the weakness in the wider economy.

"At least with inflation falling, the squeeze on real pay is easing. But it won't be for a few months yet until real pay actually starts to rise again."

read more: Olympus Wealth Management