People look at job vacancies in London. In the three months through August, youth unemployment increased to 991,000, the highest since records began in 1992. Simon Dawson / Bloomberg

Figure increases to 15-year high, wages lag behind price growth

LONDON - UK unemployment rose to the highest in 15 years in the three months through August, adding pressure on the government to loosen its fiscal squeeze as the economy struggles to avoid recession.

The jobless rate increased to 8.1 percent from 7.9 percent in the three months through July, the Office for National Statistics said in London on Wednesday. The number of unemployed increased to 2.57 million, the most since 1994. In September, jobless claims rose for a seventh month.

Chancellor of the Exchequer George Osborne has pledged to maintain the biggest fiscal squeeze since World War II even as the outlook for the recovery deteriorates. Bank of England policymakers restarted their asset-buying program last week amid an escalating debt crisis in Europe and slowing global growth, a move Governor Mervyn King described as a response to what may be the worst financial crisis ever.

"Unemployment is a political issue," said David Tinsley, an economist at BNP Paribas SA in London. "It feeds into the fiscal position and it's something they will worry about considerably. We're not expecting a lot of shedding of jobs, but hiring will be very, very sluggish."

In September, jobless-benefit claims increased 17,500, the statistics office said. Economists had forecast an increase of 24,000, according to the median of 23 estimates in a Bloomberg News survey. The claimant count rate rose to 5 percent, the highest since January 2010, from 4.9 percent in August.

In the three months through August, youth unemployment increased to 991,000, the highest since records began in 1992. The jobless rate in that category was 21.3 percent.

Growth plan

BAE Systems PLC said last month it will cut 3,000 jobs in the United Kingdom and end a century of aircraft manufacturing at a site in northern England as global defense cuts hit orders for its fighter jets.

Ed Balls, the opposition Labour Party's Treasury spokesman, will urge the government in a Parliamentary debate on Wednesday to slow the pace of deficit reduction and boost growth by reinstating a tax on bank bonuses to fund homebuilding, bringing forward infrastructure spending, and offering a tax break for small companies taking on new employees. Osborne has said he will stick to his plan to eliminate the structural deficit by 2015, saying the program has earned Britain credibility with markets.

The National Institute of Economic and Social Research said on Tuesday that the recovery is the weakest Britain has seen for almost a century, with output in the third quarter estimated to be 4 percent below its pre-recession peak in early 2008.

The economy has barely expanded over the past year as high inflation and low wage growth squeeze household budgets.

The unemployment report on Wednesday showed that annual growth in pay excluding bonuses slowed to 1.8 percent in the three months through August from 2.1 percent in the quarter through July. Including bonuses, wages rose 2.8 percent, lagging behind consumer-price growth that was at 4.5 percent in August.

Bloomberg News