Jobless Figure Drops Despite Downturn

Unemployment is forecast to have fallen by 45,000 in the three months to June, even though the recession has been deeper and lasted longer than many had expected.

Official data released later is expected to show the number of jobless people fell to 2.58 million in the second quarter of the year - leaving the total rate at 8.1% - despite the surprisingly large drop of 0.7% in economic output over the same period.

More up to date information on the number of people claiming Jobseeker's Allowance in July is forecast to have risen by 7,500 to 1.61 million.

However, the Office for National Statistics has said that the claimant count is being boosted by changes to benefit rules for lone parents which came into effect on May 21.

Howard Archer, chief economist at IHS Global Insight, said: "It has to be said that it remains very hard to reconcile the resilience of the labour market with the contraction of the economy since the third quarter of 2011.

"The implication is that either the economy is doing appreciably better than the national accounts data show, the labour market is doing significantly worse than the hard data show, or productivity has genuinely weakened sharply.

"The jury is currently very much out as to what the actual answer is but in the spirit of being a typical economist, the temptation is to go for it being a combination of all three."

The data will also reveal whether temporary employment for the Olympic Games has had any effect.

If forecasters have got their numbers right, both interpretations of UK unemployment suggest that the labour market is becoming weaker in recent months with unemployment falling at a slower rate and an acceleration in the increase of the claimant count.

Bill Hubard, chief economist at Markets.com, said: "Unemployment in recent months has been helped by a restraint in earnings growth while the number of people working part time and in self-employment has grown.

"I expect unemployment to increase later in the year as a consequence of extended soft economic activity, heightened business caution and continuing austerity in the public sector.

"Unless the economy picks up I expect firms will be forced to shed some workers that they have been holding on to leading to unemployment peaking at about 2.80m in 2013 which would see an unemployment rate of 8.7%."

It comes as the Trades Union Congress warned that young people looking for a job are facing the toughest outlook for two decades.

In a new report, it said that more than one in five people aged between 16 and 24 are out of work, significantly higher than in 1992, when the rate was 16%.