Decline in unemployment slows

Unemployment in April reached its lowest level since mid-1991. But the decline in the number of people claiming unemployment benefit was less steep than in recent months.

The Treasury greeted the unemployment figures, along with flat average earnings growth in March, as further evidence the economy is slowing, the justification of the Chancellor of the Exchequer, Kenneth Clarke, for not raising base rates at the beginning of this month. However, many City economists thought yesterday's figures would not affect the next monetary meeting between Mr Clarke and Eddie George, Governor of the Bank of England, on 7 June.

The number of people claiming unemployment benefits dropped to 2.33 million in April. The fall of 18,900 was well below the average drop of 31,100 in the past six months.

Changes to the rules for invalidity benefit, which will switch some claimants to unemployment benefit and add to the headline jobless total, came into effect last month. This had no effect in April, but will eventually add an estimated 160,000 to the claimant count.

Figures also released yesterday showed that underlying average earnings rose 3.5 per cent in the year to March. This was the same as February thanks to lower City bonuses this year. Average earnings growth is expected to rise in coming months.

Other statistics pointed to continuing strength in the labour market. Employment in manufacturing rose by 4,000 in March, taking the first-quarter increase to 15,000. The number of jobs in manufacturing has gone up by 49,000 in the past three quarters.

There was also a sharp increase in the number of vacancies reported to Jobcentres last month. They were up by 7,400 after five weak months.

David Hillier, UK economist at NatWest Markets, said: ''This set of figures does not tilt the debate about whether base rates will go up either way.'' He said the minutes of the 5 April meeting between the Chancellor and the Governor, published yesterday, showed the pound would remain the deciding factor.

In April, Mr Clarke and Mr George agreed not to move interest rates. The evidence showed the pace of economic activity had slowed, although there were cost pressures. Mr George said that if the weakness of the pound persisted policy would have to be tightened .

Mr Clarke again decided not to raise base rates in May, but the Bank of England's subsequent Inflation Report suggested that this was contrary to the Governor's advice.

The pound was virtually unmoved by yesterday's statistics. It ended at 84.5 against a basket of currencies, a shade above when the Inflation Report was released last week.

Separate figures yesterday showed that the Goverment borrowed pounds 4.26bn in April. This was more than analysts had expected, but most pay little attention to the figures for the first month or two of the new financial year.