Unemployment jumped by 70,000 in the three months to the end of February, amid the lowest growth in pay rises since 2001, as pressure mounts on George Osborne to adopt a more aggressive growth strategy.
The number of unemployed people reached 2.56 million, with 20,000 under 25-year-olds joining the jobless ranks, pushing the unemployment rate up from 7.8% to 7.9%. It was the third consecutive increase and the highest level since July. Britain's working population is also suffering from an austerity squeeze, with the average pay rise slipping to 1%, the lowest since records began in 2001 and well short of the 2.8% inflation rate.
The figures, which reflect a reversal of last year's trend of falling unemployment, come after the International Monetary Fund this week urged the chancellor to ease his austerity plans and deploy more aggressive measures to spur growth.
The Bank of England's decision to freeze its policy of injecting funds into the economy, known as quantitative easing, is also adding to the pressure on Osborne to switch to a more active economic stance. Minutes of the central bank's April monetary policy committee, released on Wednesday revealed a six-three majority in favour of maintaining interest rates at 0.5% and keeping the level of QE at £375bn.
The MPC has remained split for several months despite the governor, Sir Mervyn King, regularly voting for a £25bn boost to QE. King has lost the vote an unprecedented three times since February when he sided with Bank director, Paul Fisher, and external committee member David Miles, a former City economist, in calling for an injection of funds into the economy to boost lending and stagnant growth.
Consumer spending in the economy has picked up in recent months, but analysts worry that it will peter out if the gap between pay rises and inflation continues to erode disposable incomes – a trend underlined by the latest data.
The unemployment rate for 16 to 24-year-olds also remained a concern after it edged back towards 1 million. In the three months to February the number of young people out of work reached 979,000, pushing the youth unemployment rate to 21.1%, up 0.6 percentage points from September to November 2012. The number of people claiming jobseeker's allowance fell by 7,000 to 1.53 million provided a semblance of a silver lining, indicating a fall in government costs.
However, a steep fall in manufacturing and construction output this year has undermined hopes of a strong resurgence in growth. Vicky Redwood, chief UK economist at the consultancy Capital Economics, said it was likely that further aggressive moves by the Bank of England would be delayed until after the new governor, Mark Carney, arrives in July.
The calls for further action are expected to grow when estimates for first quarter GDP are released next week, with the UK just one quarter of negative growth away from a triple-dip recession.
"More QE in May is still possible, especially if the Q1 GDP figure is worse than expected. But it may be that we have to wait until Carney arrives before the MPC will take more action. Note, though, that even those voting against QE this month still seem open to further action to boost bank lending, with the committee seeing merit in possible extensions to Funding for Lending."
Howard Archer, chief UK economist at IHS Global Insight, said: "Despite a 7,000 drop in claimant count unemployment in March, the labour market data are clearly softer overall compared to a couple of months ago.
"Overall, the data fuels concern that the labour market's recent strength is fraying as the economy continues to struggle for even modest sustained growth. Meanwhile, earnings growth remained very weak in February. While weak earnings growth is clearly helping to keep unemployment down, the flip-side of this is that it continues to limit consumers' purchasing power.
"Indeed, with total earnings growth limited to 0.8% in February itself, pressure on people's purchasing power has intensified recently given that consumer price inflation has risen back up to 2.8% in March and could well hover around 3% for much of 2013."
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