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Wednesday, August 11, 1999 Published at 12:47 GMT 13:47 UK

Business: The Economy

Unemployment falls again

New jobs in the service sector have helped bring unemployment down

The number of people out of work and claiming benefit in the UK dropped by 32,900 in July to 1,236,300.

The BBC's Russell Hayes: "Things will have to change sooner or later"
The unemployment rate is now 4.3% - the lowest figure since March 1980.

And the UK now has more people in work than ever before - a total of 27.4m.

But increased average earnings figures have added to concerns about inflationary pressures on the economy.

The jobless figures - from the Office for National Statistics - show unemployment down 96,900 over the past year.

Service industries buoyant

The government's preferred figure, which includes people looking for work but not eligible for benefits, showed a fall in unemployment of 62,000 to 1,760,000 in April to June, compared to the previous three months.

The BBC's Steve Evans: "There are international jitters about inflation"
That drop has been largely driven by the service industries, a trend which continued on Wednesday when telephone operator Kingston Communications announced the creation of 1,100 jobs at a £4 million call centre business in Hull.

Education and Employment Secretary David Blunkett said: "Last year doom and gloom merchants predicted a rise of unemployment of half a million. In fact, since last year employment has grown by 347,000, now at record levels."

He added: "Despite falling to a new 20-year low unemployment remains high by initial post-war standards and there are many inactive people who can still be brought into the world of work. I will not be satisfied until we reach those post-war levels again."

[ image: Analysts had expected a much smaller drop in the jobless total]
Analysts had expected a much smaller drop in the jobless total
The monthly fall was much bigger than the markets were expecting - predictions had put the figure at about 5,000.

One labour market analyst said: "It is an extremely strong report, highlighting the tightness of the labour market and clearly highlights inflation risks."

Another said: "I am surprised the figure has moved so much. It does underline the fact that it has been an extremely soft landing. This is very bad news."

The figures were accompanied by statistics which showed average earnings in the three months to June rose 4.4%, compared to the May figure of 4.3%.

This rise was fuelled by increased pay in the service sector, partly due to bonuses being paid to staff in the telecoms, real estate and retail industries.

Manufacturing workers' earnings growth stayed level at 3.4%, while unemployment rose in the sector.

Twin-track economy

The figures highlighted Britain's twin-track economy, with sharp growth in the service sector and continued hardship being suffered by manufacturers.

The Treasury said the earnings figures reinforced the need for vigilance and responsibility on pay.

With the Bank of England predicting on Wednesday that inflation would rise above its 2.5% target in two years' time, analysts said interest rates were on their way up sooner rather than later.

"I think its is pretty unanimous that both the employment data and the average earnings data were worse than markets were looking for," said Ryan Shea at First Chicago.

"From our point of view, given the way the Monetary Policy Committee (of the Bank of England) works in the economy, they will have to start to tighten rates in about six months."

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