Unemployment likely to keep on rising

LONDON (Reuters) - Unemployment is likely to have marched higher in September and October and analysts say worse is to come as the economy slides into its first recession since the early 1990s.

A sign for a job centre is seen at offices in west London October 15, 2008. REUTERS/Toby Melville

Economists expect the number of people claiming jobless benefit to jump by 40,000 in October and the internationally comparable ILO unemployment rate is seen rising to 5.8 percent in September, when official data is published on Wednesday.

At the last count, ILO unemployment soared 164,000 to 1.792 million in the three months to August -- the biggest rise since 1991 -- and concerns are growing that two million Britons could be out of work by Christmas.

“Absolutely, it’s certainly what we are forecasting,” said Alan Clarke, an economist at BNP Paribas. “

“There were only three months that were worst than that (August) in the early 1990s recession and this slowdown has only just started.”

The data, which is published just before the Bank of England’s quarterly inflation forecasts, should also provide further evidence that inflationary pressures are easing as rising unemployment keeps a lid on wage demands.

That will reinforce market expectations for further big cuts in interest rates to prop up the economy.

The Bank of England slashed rates by 1.5 percentage points to three percent last week, the lowest in more than half a century, and some analysts think rates could fall to record lows around 1.5 percent given the speed of the economic slowdown.

The economy shrank by 0.5 percent in the third quarter and is expected to continue contracting well into 2009 as the aftershock of the financial crisis reverberates through to households.

“The upshot is that few, if any, areas of the economy will escape a major labour market shake-out over the next couple of years,” said Vicky Redwood, an economist at Capital Economics.

A prolonged period of rising unemployment will put further pressure on the already-stretched public finances as welfare spending rises and income tax receipts fall.

The government has signalled it is prepared to suspend its borrowing limits to provide an economic boost.

“There is now a growing international consensus that ... maintaining essential public investment is the right and sensible approach, while allowing a temporary and affordable increase in borrowing to support economic growth,” Prime Minister Gordon Brown said on Monday.

Polling by Bangalore Polling Unit; Editing by Ruth Pitchford