Britain's labour market showed signs of stabilisation at the end of last year, with the biggest fall in benefit claims in nearly 3 years and the first fall in an internationally comparable unemployment measure in 18 months.
However, overall employment levels fell, after the number of people of working age who were neither in jobs or looking for work rose to its highest rate since August 2007.
"It is looking increasingly possible that we have seen the peak in unemployment and that employment will begin rising again over the coming months," said George Buckley, economist at Deutsche Bank.
But policymakers are wary about calling a recovery too early. Bank of England Governor Mervyn King said last night the upturn was at a very early stage after 18 months of the deepest recession in over 50 years.
Moreover, with a national election due by June in which the opposition Conservatives are likely to dislodge the incumbent Labour Party, the figures leave plenty of scope for politicians to argue whether the jobs market has really turned a corner.
The Office for National Statistics said the number of jobless benefit claims fell by 15,200 in December to 1.6065 million, bigger than the forecast fall of 2,500 and coming on top of an upwardly revised decline of 10,800 in November.
The broader ILO jobless rate — which includes jobseekers not claiming benefits — also fell, dropping to 7.8 percent for the three months to November from October's 7.9 percent after the number of people looking for work shrank by 7,000 to 2.458 million, the first decline in 18 months.
But at the same time the number of people actually in a job dropped by 14,000 to 28.921 million in the three months to November.
The shortfall was made up by an increase in the proportion of the labour force neither in work nor looking for a job, which rose to 21.2 percent in the three months to November, the highest since August 2007. This took the absolute number to 8.046 million people, the highest since records began in 1971.
The data tally with concerns in a speech by the BoE's King last night when he said that the economic and fiscal outlook was too unpredictable for the central bank to make definitive choices about the future of quantitative easing.
The BoE started to buy British government bonds with newly created money in March to boost gross domestic product when it was shrinking fastest, and the 200 billion pounds of purchases approved so far are scheduled for completion before February's policy meeting.
Almost no economists expect further purchases to be approved next month, and Wednesday's minutes of the January policy decision did nothing to shift this view.
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Gilt futures pared gains after the data and the BoE minutes because investors initially took the figures as broadly positive on economic growth, but economists had reservations.
"The jobless figures show a rather steeper than expected decline in the claimant count but it does seem that many people are moving out of the labour market, which is what you would expect to see at this stage," said Stephen Lewis, economist at Monument Securities.
"It looks as though the labour market has stabilised, but whether it remains that way depends on the way demand develops."
Indeed, British work and pensions minister Yvette Cooper told Reuters Insider television that the data did not alter finance ministry forecasts that joblessness was likely to rise again before the election.
"It's very different from previous recessions when we had much higher unemployment. But we do expect it to be tough for the next few months. So we do expect overall unemployment to increase before we get to the summer," she said.
Factory closures, such as those by car parts firm Robert Bosch and steelmaker Corus, announced at the end of last year have yet to feed into the data. The impending takeover of confectionery firm Cadbury by U.S. foodmaker Kraft is also likely to cost jobs.
The ONS also published its new Average Weekly Earnings series, a cash-based measure which it says provides a more reliable gauge of wage developments in the economy and is replacing the old Average Earnings Index.
The new series showed average weekly earnings rose by an annual 0.7 percent in the three months to November to 451 pounds ($736). Excluding bonuses, average weekly earnings rose 1.1 percent to 424 pounds — the smallest increase since the series began on an experimental basis in 2001.
The old average earnings index showed a 1.6 percent annual rise in the three months to November, in line with forecasts, and the ONS said the difference was due to a shift in employment towards lower-paid occupations, which had been better reflected in the new series.
