UK unemployment eases

February 13, 2002 Posted: 1230 GMT

LONDON (CNN) -- UK unemployment dipped unexpectedly in January as the country's labour market continued to strengthen even as the economy slowed.

The Office for National Statistics said unemployment claims fell by a seasonally-adjusted 10,600 last month to 951,300. Many economists had expected claims to rise by 6,000.

The January decline in unemployment follows three consecutive months of increased jobless claims.

The ONS said the jobless rate was 3.2 percent in January, unchanged from the previous month.

Meanwhile, the government said the labour market showed signs of strengthening in the final quarter of last year, as the number of workers rose to 28.232 million -- the highest since records began in 1979.

The statistics office also said average earnings rose by 3.3 percent in the final quarter. That was down from 4.1 percent in the previous three-month period and below the average forecast of 4.0 percent.

The decline in earnings growth was due to a sharp fall in bonuses paid by UK financial institutions after a poor market performance in the last year.

The strong employment numbers come one day after government figures showed inflation jumped 2.6 percent in January from 1.9 percent in the previous month.

The rise in the January inflation rate prompted concerns the economy could start to overheat, and force the Bank of England to raise interest rates – after a series of cuts -- to slow demand.

However, the Bank of England said on Wednesday it expected inflation to remain under control over the next two years with economic growth recovering.

The BoE forecast inflation, minus the cost of home loans, will run at around 2.0 percent this year and then rise close to its government-set 2.5

percent target.

The bank's key interest rate currently stands at a 38-year low of 4 percent, but some economists expect it will rise to about 5.25 percent by the end of this year.

Economic growth, which slowed to just under 2 percent in the final quarter of last year, is expected to slow further in the first quarter of this year, before recovering to around its 2.5 percent trend level over the next two years.

The BoE said inflation "is likely to run slightly below target in the near-term although monthly movements are likely to remain erratic, reflecting various one-off factors."

-- Reuters contributed to this report