BoE Prints 75 Billion Quid as Unemployment Rises Faster Than Their Worst Year of 1971

Maybe the IMF was under estimating the recession in the U.K.

March 18 (Bloomberg) — U.K. unemployment rose at the fastest pace since at least 1971 in February, deepening the plight of Prime Minister Gordon Brown as he struggles to stop the economy’s downward spiral.

The jobless figure rose 138,400 to 1.39 million, the Office for National Statistics said. That’s more than the population of Cambridge and compares with the increase of 84,800 forecast by a Bloomberg survey of 20 economists. Separately, the Bank of England voted unanimously to print 75 billion pounds ($98 billion) in money in an emergency bid to shore up the economy.

With 15 months before he has to hold an election, Brown is losing support as companies from automakers to retailers eliminate jobs to reduce costs. The Bank of England this month cut the benchmark interest rate to almost zero and started buying government bonds to ramp up the money supply in an economy facing its worst recession in least three decades.

“It’s a huge, huge increase,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc. “These sorts of increases leave us very much on course for breaching 3 million this year.”

A broader measure of unemployment climbed above 2 million for the first time since 1997 and incomes grew at the slowest pace since at least 1991. The jobless total based on International Labor Organization methods last exceeded 3 million in 1993, when John Major’s Conservative Party was in power.

The pound fell and traded at $1.3901 at 10:11 a.m. in London compared with $1.3939 before the report.

Job Cuts

Thousands of jobs cuts at companies from Ford Motor Co. and GKN Plc to Vodafone Group Plc have taken unemployment to the highest level since the ruling Labour Party took office 12 years ago. Brown now faces the prospect of fighting the next election, which must be held by June 2010, with one in 10 people of employment age out of work.

“What we’ve got to say as a government is that we’ve got to take responsibility,” Peter Mandelson, the Cabinet minister in charge of business, said on GMTV today. “We take responsibility for digging our economy out of a mess that the failure of our banks has thrown us into. First of all, we have to restart global growth.”

Apology

As finance minister for a decade until June 2007, Brown is under mounting pressure to apologize for his role in the turmoil that has starved companies and consumers of credit, forced the government to take control of four U.K. lenders and led to the steepest drop in manufacturing in at least four decades.

Recent opinion polls give the Conservatives, led by David Cameron, a lead of as much as 16 points over Labour.

Brown is working with the Bank of England to rescue the economy. His government has pledged a 20 billion-pound stimulus package to help people through the slump and policy makers debated bond purchases of between 50 billion pounds and 100 billion pounds at their March 5 meeting.

Some economists nevertheless say that measures in the U.K. don’t go far enough.

While so-called quantitative easing will help end the recession, “it should have been done last autumn,” said Tim Congdon, economic adviser to former Chancellor of the Exchequer Kenneth Clarke in the mid 1990s. “Hundreds of thousands of jobs would have been saved.”

Claimant unemployment rose for a 13th month in February, the longest stretch since the 16-month period to June 2006. The increase in January was revised to 93,500 from 73,800. The jobless rate rose to 4.3 percent in February, the most since March 1999, from 3.9 percent in January.

Wage Pressures

Wage pressures subsided, with pay falling 0.2 percent in January from a year earlier because of the lower bonus payments, the first decline since records began in 1991. In the three months through January, wage growth slowed to a record low of 1.8 percent from 3.1 percent. Excluding bonuses, the pace slowed to 3.5 percent from 3.6 percent.

Group of 20 leaders meet in London on April 2 as the first global recession since World War II sends unemployment soaring from the export-reliant economies of Asia to European victims of the property bust such as Spain and Ireland.

American employers eliminated 651,000 jobs last month, pushing the jobless rate to 8.1 percent, the highest level in more than a quarter century.

The euro-region unemployment rate climbed to 8.2 percent in January. In Britain, the rate rose to 6.5 percent between November and January, the highest since the final quarter of 1997.