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Last Updated: Wednesday, 13 July 2005, 09:59 GMT 10:59 UK
UK labour market 'is softening'
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More people claim benefits despite the fall in unemployment
The number of jobless people in the UK is continuing to fall, yet more people claim unemployment benefits, Office for National Statistics (ONS) figures show.

"The data show the labour market is softening," said BNP Paribas economist Alan Clarke.

The government's preferred ILO measure of unemployment fell by 4,000 to 1.43 million in the March to May period.

However, the number of people claiming unemployment benefits increased by 8,800 last month to 864,900.

It was the fifth month running when the number of claimants rose, the longest sequence of monthly rises since 1992.

The data could provide the green light for the Bank to provide a confidence boosting 25 basis points rate cut in August
Gavin Redknap, economist at Standard Chartered Bank

The latest figures offer "no big surprises", yet there is "bad news" when the unemployment situation is looked at over the last five or six months, according to Commerzbank economist Peter Dixon.

"We are up 50,000 on the claimant count measure of unemployment this year, the unemployment rate continues to rise whether it be the ILO or claimant count measure, and it is just a clear indication that one of key supporting props of the UK economy is weakening slightly."

Separately, figures showed that the pace of earnings growth is slowing. In the year to May, earnings including bonuses rose 4.1%, down from 4.6% growth in the year to April.

'Green light'

Analysts are now predicting the weak job figures could lead the Bank of England to cut UK interest rates as early as August, despite figures on Tuesday showing UK inflation rising to 2% in June.

"It just really reinforces the case for a Bank of England rate cut sooner rather than later," said Mr Dixon.

Gavin Redknap, economist at Standard Chartered Bank, said the weaker wages figure was welcome after Tuesday's inflation data.

"The data could provide the green light for the Bank to provide a confidence-boosting 25 basis points rate cut in August, though the move is far from a done deal."

He said if the bank did act it would be an isolated cut rather than an ongoing reduction in the base rate.

And Alan Clarke, economist at BNP Paribas, predicted "an interest rate cut as soon as August".

'Vacancies high'

Commenting on the figures employment minister Margaret Hodge said compared to a year ago there were "more people working, unemployment is broadly unchanged and there are fewer people claiming out-of-work benefits".

She said the reason the data had provided a "mixed picture" was because recent increases in employment had "not shown through this quarter".

"Vacancies are high, redundancies remain very low and new unemployment claims are roughly flat," she added.

"These are not figures usually associated with a weakening economy."

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