British jobless claims fell three times faster than expected last month, giving a boost to financial markets, though the upbeat message was undercut by the rise in a broader unemployment measure to a 14-year high.
Wednesday's official data adds fuel to Britain's closest-run election race in decades, with the opposition Conservative and Liberal Democrats seizing on the rise in the jobless rate to slate the ruling Labour Party's record ahead of the May 6 poll.
The Office for National Statistics said the number of people claiming jobless benefit fell by 32,900 in March, far more than forecasts for a 10,000 fall. The ONS also revised up February's fall to 40,100 from 32,300, making it the sharpest drop since June 1997.
However, the number of people without a job on the wider ILO measure — which additionally includes jobseekers who are not claiming benefits — rose by 43,000 to 2.502 million in the three months to February, the highest since the last three months of 1994.
That took the jobless rate up to 8.0 percent, the highest since 1996 and above forecasts for a steady reading of 7.8 percent.
The divergence in the figures posed a puzzle to economists trying to figure out whether Britain's economy will continue to recover from its deepest recession in decades.
GDP figures on Friday are expected to show the economy grew 0.4 percent in the first three months of this year, matching growth in the final three months of 2009.
Investors seemed encouraged by the data, propelling the pound to a two-month high against the euro <EURGBP=>.
Combined with survey evidence suggesting firms are hiring more staff, analysts said the jobless claims figures suggested the labour market was returning to a more stable footing.
"The labour market has stabilised in our view," said Amit Kara, economist at UBS. "Although unemployment on the (ILO) Labour Force Survey measure has risen, the more forward-looking indicators that include the claimant count data and the surveys suggest that employment prospects have improved."
The government also gave a cautious welcome to the figures, but stressed the need to keep support measures in place until recovery is assured.
JOBLESS PUZZLE
Despite the fact that Britain suffered its deepest downturn in its post-war history in the 18 months to September 2009, unemployment has risen less sharply than in previous recessions.
"The labour market is in far better shape than we dared to hope for at this stage of the economic cycle," said Brian Hilliard at Societe Generale.
Many economists have attributed this to workers being willing to accept lower pay and shorter working hours to safeguard their jobs.
The ONS figures showed headline wage growth picked up in February, although that was largely due to base effects from a fall in bonus payments last year.
Average weekly earnings including bonuses rose by 2.3 percent in the three months to February from 0.8 percent in the three months to January, slightly below expectations for a rise to 2.5 percent.
Excluding bonuses, wages rose by just 1.7 percent in the three months to February — well below inflation, which is currently running above 3 percent.
But other aspects of Wednesday's data make for more worrying reading. On the ILO measure the number of people out of work for more than a year rose to 726,000, the highest since Labour came to power in 1997.
And the number of people defined as 'economically inactive' — those who are neither working nor looking for a job — rose to a record high of 8.16 million, although more than 2 million of those were students.
Some analysts urged caution in interpreting the ILO jobless figures, which are based on a monthly survey some types of jobseekers who are ineligible for unemployment benefits, such as those who are also students.
"In the past, quarterly movements in the ILO series have been a little bit unreliable, so we'd be hesitant to use them as gospel," said Philip Shaw, economist at Investec.
"Perhaps it's a little safer to conclude there are some signs of stabilisation in the labour market."
