Youth unemployment surge triggers worst jobless rise in two years

By Louisa Peacock, Jobs Editor

Economists warned official growth forecasts may have wildly underestimated the number of job cuts needed to achieve drastic spending cuts, piling further pressure on George Osborne to justify "plan A" amid a deteriorating economic outlook.

Unemployment rose by 80,000 to reach 2.51m in the three months to July, according to the Office for National Statistics. But 77,000 of the newly unemployed were 18 to 24 year-olds - an 11pc rise compared to the previous quarter, the figures showed.

Worryingly, the number of young people out of work for more than a year rose by 35,000 on the quarter to reach 219,000, while the total number of youths out of work for two years or more surged by 12pc on the quarter to 93,000.

The total number of 16 to 24 year-olds without a job rose to 972,000 in the three months to July, the figures showed. The number of students fell by 46,000 on the quarter to 2.2m, the figures showed, which could explain the rise in youth unemployment.

Employment experts say the figures serve as a huge wake-up call to ministers to do more to create private sector jobs and tackle youth unemployment before tens of thousands of young people become increasingly detached from the labour market and consigned to a life on benefits.

Elsewhere, the number of people claiming Jobseekers' Allowance rose to 1.58m in August, up by 20,300 from the month before. It is the second month in a row that both the claimant count and the unemployment rate have increased, laying bare the fragile state of the jobs market in the UK.

Nigel Meager, director of the Institute for Employment Studies, said: "Policy-makers now need to stop sitting on their hands and start looking for ways to get spending power into the economy quickly."

Nida Ali, economic adviser to the Ernst & Young ITEM Club, said: "The Office for Budget Responsibility may have underestimated the number of job cuts required to achieve the desired level of spending cuts."

The business community was divided over whether more quantitative easing was needed; the Institute of Directors said it would help squeezed householders but Mr Meager warned it would simply "swell the balance sheets of the banks".

In brighter news, average earnings including bonuses increased by 2.8pc in July, up 0.1pc on the previous month. However, stripping out bonuses, average weekly earnings fell by 0.2pc to 2.1pc in July, worse than expected.

But the ONS figures show the number of vacancies fell by 8,000 over the quarter to reach 452,000. Some 162,000 people were made redundant in the three months to July, a 40pc increase on the quarter, taking the redundancy rate to 6.5pc.

The number of employed people fell between May and July by 69,000 to 29.17m, driven by public sector job cuts, which was the biggest fall since the quarter to March 2010.

The number employed in the public sector fell by 111,000 between March and June to reach 6.04m, the largest fall since records began in 1999. In June, the public sector accounted for 20.7pc of all people in employment, the lowest level since September 2008.

The figures come as unions ratchet up talk of further public sector strikes against proposed changes to pension payouts.

George Osborne, the Chancellor, is banking on a healthy private sector to pick up the slack in the economy but recent data, showing soft manufacturing growth, a contraction in the services sector and a stagnant trade deficit, has raised fears over the strength of the recovery.

The Centre for Economics and Business Research warned the Government will be under "immense pressure" to deal with unemployment, especially given President Barack Obama's $450m job creation package announced in the US last week.

Scott Corfe, senior economist at the CEBR, said: "The focus of a UK jobs creation package would almost certainly be on private sector deregulation and measures aimed at reducing the risk associated with hiring new workers - rather than a slowdown in the pace of deficit reduction - given the political costs of moving away from 'plan A'. All the economic indicators suggest the UK economy is struggling to generate momentum and a proper growth agenda from policymakers can no longer wait."

Economists branded the ONS report was "worrying". Howard Archer, chief economist at IHS Global Insight, said: "This is a worrying jobs report which indicates that the economy’s persistent weakness, lower business confidence and public sector job cuts are now feeding through to take significant toll on jobs. Meanwhile, ongoing muted wage growth is maintaining the serious squeeze on consumers’ purchasing power."

He said unemployment would continue to rise for the rest of this year as public sector job losses continued, peaking at around 2.7m in 2012.

Daniel Callaghan, founder of recruitment company MBA & Co, said: "The UK jobs market has been fairly resilient considering the poor state of the economy, but these figures are an ominous sign for the months ahead. Public sector job losses are continuing to weigh down on the recruitment market as a whole, and the private sector is no more willing to bear the brunt of this now than it was three months ago."

Youth unemployment charity Tag warned that the high numbers of young people out of work were directly linked to the riots which engulfed Britain in recent weeks. Fred Turok, founder, said: "The increase in youth unemployment, for the second month in a row, really is no great surprise to me. We’ve just had another year of school and college leavers and graduates entering the job market but there are simply not enough jobs for them.

“As a nation we’re heading towards a black hole, where what happened on our streets this summer might well become the norm, not the exception. One solution to that problem has to be a partnership between government and employers - but employers need an incentive."

Employment minister Chris Grayling said the Government was doing all it could to help the jobless back to work, adding growth was a priority. Telegraph