Unemployment jumps to 2.5m as public sector cuts bite

We all knew it was coming, but it wasn't supposed to happen just yet... The Office for National Statistics provided the Government with an unwelcome early Christmas present today by revealing that UK unemployment rose by 35,000 to 2.5m in the three months to September. It's the first rise since the first quarter of this year, and means 7.9% of the workforce are now out of a job - more than the City expected. And there's an obvious culprit: public sector employment fell by 33,000 to 6m during the period, the biggest drop since quarterly records began in 1999. After a year in which the labour market has actually done rather better than everyone expected, today's figures presage a rocky year ahead...

More job losses were always going to happen, of course, in the light of the Government's spending cuts and tax hikes. But economists weren't expecting this to reflected in the jobless count until the new year; in fact, the consensus was that last quarter's unemployment figure would remain pretty static. No such luck, however. The public sector was hit hard, with 18,000 civil servants losing their jobs during the period. But there was also bad news on young people, with unemployment in the 16-24 age group rising 28,000 to 943,000 (that's 19.8%), and women, with the percentage of women of working age in jobs down by 0.2% (whereas for men the figure was static). And with earnings growth at just 2.2%, well below inflation, most of us are finding our wages don't stretch as far as they did.

At first glance, the claimant count does seem to provide some cause for optimism - the number of people claiming Jobseeker's Allowance fell by 1,200 to 1.46m. But we can't read too much into it. Some of these people have clearly settled for part-time work; the ONS said the number of people working part-time because they can't get a full-time job was up 46,000 to 1.16m, the highest figure since comparable records began. Others are opting out of the labour market altogether: the number of 'inactive' people jumped by 22,000, thanks partly to a rise in early retirement. That might save bit of money for the benefits pot, but it limits the UK's overall economic potential.

All in all, it doesn't really bode well for the coming months. Public sector job cuts are likely to accelerate, and it's a bit hard to see the private sector (where the employment rate remained basically flat last quarter) picking up the slack, at least in the short term. So expect more of the same next time round. How's that for a bit of festive cheer?