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Last Updated: Wednesday, 13 December 2006, 10:50 GMT
Unemployment falls to 1.7 million
Man being advised by a Jobcentre employee in London
The jobs market could be in better shape than analysts thought
Unemployment in the UK fell by 7,000 to 1.7 million in the August to October period, according to official figures.

The drop left Britain's jobless rate unchanged at 5.5%, the Office for National Statistics (ONS) reported.

The number of people out of work and claiming benefit also dropped by 5,700 in November to 950,800 - its sharpest fall since January 2005.

The data suggests the labour market is in better shape than many had thought, and could point to further rate rises.

The Bank of England last week kept interest rates on hold at 5%, but many analysts predict that the cost of borrowing could rise again early next year.

Expectations of a quarter point rise in interest rates were further fuelled on Tuesday, after the key Consumer Price Index measure of inflation rose to a near-decade high of 2.7%.

'Heightened fears'

The fall in unemployment reflects a modest rise in the labour force rather than rapid job creation
Geoffrey Dicks, Royal Bank of Scotland UK economist

Separately, the ONS said average earnings in the three months to October rose by 4.1% compared with a year ago, up from 3.9% in the three months to September.

The rise in earnings during the quarter was largely driven by private sector services, the ONS said.

Geoffrey Dicks, UK economist at Royal Bank of Scotland, said the labour market figures were "slightly stronger than the market expected".

"The fall in unemployment reflects a modest rise in the labour force rather than rapid job creation," he said.

"The rise in earnings simply unwinds the previous month's decline and leaves earnings growth very much in the range that it has been in all year.

"Still, with heightened fears of a wage response to the pick-up in price inflation, any increase is bound to increase speculation of a February rate hike."

'Encouraging picture'

However, Ian Brinkley of consultants The Work Foundation, said there was little in the current figures to put additional pressure on the Bank of England to raise interest rates in the near future.

"The labour market looks better on the surface than it really is," Mr Brinkley said.

"Unemployment has stabilized not because the economy is producing more jobs but because more people of working age have dropped out of the labour market."

Employment minister Jim Murphy welcomed the latest unemployment figures, and said they showed "welfare reform in action".

"These figures paint an encouraging picture," he said. "The UK already has the highest employment rate in the G8, but we need to go further still."

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