Money world

U.K. unemployment rose at the fastest pace since 1991 in November and the Bank of England considered cutting interest rates to the lowest ever this month as the recession tightened its grip.

The number of people receiving jobless benefits rose 75,700 to 1.07 million, the highest level since July 2000, the Office for National Statistics said today in London. U.K. policy makers voted unanimously to cut the benchmark rate to 2 percent and refrained from a bigger reduction on concern it may prompt an “excessive” drop in the pound, minutes of their decision show.

The U.K. currency dropped to a record low against the euro after the reports. Bank of England Governor Mervyn King has signaled that the bank will cut the interest rate further if needed and Prime Minister Gordon Brown pledged today to do everything possible to counter joblessness.

“Unemployment will continue to rise sharply in 2009,” said Philip Shaw, chief economist at Investec Securities in London. “Rates will fall below 1 percent in the spring. The momentum of sterling means it’s vulnerable.”

The pound dropped to 91 pence per euro for the first time today, and has fallen more than 24 percent this year. The depreciation “should act to support net export growth,” policy makers said in the minutes.

The Monetary Policy Committee voted 9-0 to bring the rate to the lowest since 1951 at the Dec. 4 decision. If they had reduced it further, it would be lower than at any time since the central bank’s foundation in 1694. A larger cut “might be justified by the scale of the downside risks to inflation,” the minutes said.

Job Cuts

Companies from Taylor Wimpey Plc to Nomura Holdings Inc. have axed thousands of jobs in Britain in recent weeks as the worst financial crisis in a century sends shock waves across the economy. Almost 30,000 jobs are under threat at Woolworths Group Plc and MFI Retail Ltd. after the retailers went into administration late last month.

“We must do everything we can to combat unemployment,” Brown said today. He told reporters traveling with him on a visit to Baghdad that “the problem we have to address is how to get more people into jobs. We’re determined to do everything we can against this worldwide situation where unemployment is rising.”

Chancellor of the Exchequer Alistair Darling last month pledged 20 billion pounds ($31 billion) of tax cuts and spending to prevent the recession from turning into a deep and protracted slump.

Credit Rationing

Banks continue to ration loans for companies and households even after the government promised 50 billion pounds to bolster their capital guaranteed payday loans. Business services companies will cut 275,000 workers in the next two years as the recession ravages the advertising and real estate industries, the Centre for Economics and Business Research said Dec. 15.

After almost 16 years of continuous growth, the U.K. economy contracted 0.5 percent in the third quarter, and the Bank of England predicts it will shrink 1.3 percent next year. Policy makers cut the key rate by a percentage point to 2 percent this month after a 1.5 point reduction in November.

The jobless total based on International Labor Organization methods rose 137,000 the quarter through October to 1.86 million, the highest since December 1997, the year Brown’s Labour Party took office. The rate climbed to 6 percent, the most since June 1999, from 5.5 percent in the previous period.

It compares with 7.7 percent in the euro region in October and 4 percent in Japan in September. In the U.S., where policy makers yesterday cut the key rate to zero, the rate was 6.7 percent in November.

Election Calculation

Brown faces the prospect of fighting the next election with unemployment approaching 3 million, a level last seen in the aftermath of the early 1990s recession, economists say. Brown has won praise and improved poll ratings for his handling of the economic crisis, raising speculation he may hold the election before the deadline of June 2010.

Claimant unemployment rose for a 10th month in November, the longest stretch since the 16 months through June 2006, and the increase in October was revised to 51,800 from 36,300. Unemployment was last above 1 million in January 2001. The unemployment rate rose to 3.3 percent, the most since January 2001, from 3.1 percent in October.

Employment fell 115,000 to 29.4 million in the three months through October, the statistics office said today. The number of people made redundant rose 41,0000 to 180,000 and manufacturing jobs fell 2.5 percent on the year to 2.83 million, the lowest since comparable records began in 1978. Vacancies declined 49,000 to 562,000 in the quarter through November.

Wage pressures remained subdued. Pay including bonuses rose an annual 3.3 percent in the three months through October, the same as in the previous period. Excluding bonuses, wage growth was unchanged at 3.6 percent.

Source