Unemployment claims continue to rise in the United Kingdom, continuing an eight-month increase. This is the longest period of rising unemployment claims the United Kingdom has seen in close to 13 years. This does not bode well for the second largest economy in Europe.
Economists predicted that an extra 3,300 people would claim unemployment in the month of September. The number of claims actually rose by 8,200, more than double the prediction, to a whopping 875,500 people claiming. This is the highest number of claims since March 2004.
Despite this extreme rise in claims, however, the unemployment rate has remained steady at 2.8 percent. But I don’t believe that’s a good thing, and neither do other economy watchers.
“Somebody should wave these numbers under Mervyn King’s eyes,” Rob Carnell, senior economist at ING Bank in London, said. “You can’t keep denying the U.K. economy is weakening. There’s a fairly clear case for a cut in rates.”
This, in response, to opposition from Governor Mervyn King about reducing interest rates yet again.
Two-thirds of the U.K. economy is dependent on consumer spending, which has hit a slump, as I’ve discussed on several occasions in this column.
King, however, said he believes inflation will not fall below target and that wage growth has remained stable. In fact, wages have increased by four percent in the last three months. Somehow, however, I can’t see wage increases helping those individuals on the unemployment line.
“Today’s figures provide yet more statistical evidence of a significant slowdown in the U.K. economy,” Chief Economist Graeme Leach said based on a prediction by his organization, the Institute of Directors, that a reduction in interest rates could be prompted next month based on numbers found in the economic report.
There are many theories circling at the moment surrounding the reason for increasing claims despite the steady employment rate. In my view, it’s pretty obvious what’s going on. Higher interest rates, big mortgages on overpriced real estate, higher gas prices, and higher home heating bills are forcing even the proudest of Brits, some of which might have been unemployed for some time, to finally swallow their pride and ask for help. This is not a good sign for any economy.