Page last updated at 11:28 GMT, Wednesday, 11 June 2008 12:28 UK

UK unemployment rises by 38,000

Slower economic growth has seen companies cutting back on staff

Unemployment in the UK rose by 38,000 to 1.64 million in the three months to April, the Office for National Statistics has said.

That increased the unemployment rate to 5.3% from the previous rate of 5.2%.

The number claiming unemployment benefit rose by 9,000 in May to 819,300, the fourth consecutive rise.

The rate of increase of average earnings slowed to 3.8% between February and April, down from 4%. Analysts had been expecting a rise.

"The earnings numbers have remained subdued, albeit perhaps because of lower bonuses this time around," said Philip Shaw from investment bank Investec.

Some analysts had expected to see rising food and fuel prices leading to higher wage settlements.

"The surprising thing is average earnings remain below market expectations, which gives us some hope that the spillover from prices to wages isn't happening yet," said Peter Dixon from Commerzbank.

There has been speculation that the Bank of England could consider raising interest rates in order to tackle inflation, which is currently at 3%, above the target of 2%.

"It means the Bank of England doesn't have to be as aggressive with rate hikes as the market is currently pricing in. My view is the next move will still be downwards," Peter Dixon said.

Employment rising

The financial and construction industries have seen the highest number of job losses, according to the Institute for Employment Studies (IES).

Analysts said that retail workers may now be facing difficult times after industry figures earlier this week showed that consumer confidence in the UK had fallen to record lows.

"Monday’s gloomy consumer confidence figures from the British Retail Consortium raise the prospect that retail workers may be the next to join the dole queue," said the IES's director Nigel Meager.

The figures also showed that the overall number of people in employment has risen to its highest level on record.

The total number in work increased 76,000 in the three months to April to 29.55 million.

"Employers are still hiring and there is still no sign of a widespread increase in the firing rate," said John Philpott from the Chartered Institute of Personnel and Development.

"However, the rate of growth in employment is much slower than in recent quarters and some sectors are showing obvious signs of strain," he said.

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