Fall in unemployment surprises the City: Labour dismisses 22,000 drop as a freak while the pound soars to a seven-week high

THE number of people unemployed and claiming benefit fell by 22,000 in February, stunning the City and ending 33 consecutive monthly increases. The news dampened hopes of an early interest rate cut and helped to propel the pound to a seven-week high of DM2.4408 - up 2.83 pfennigs.

The jobless total fell to 2,971,100, adjusted for normal seasonal changes. But economists were wary of trumpeting a turning point, with most expecting unemployment to rise for at least the rest of the year.

Gillian Shephard, Secretary of State for Employment, told the Commons that the fall 'so early in the recovery cycle' would boost confidence. But she warned that it would be wrong to place too much weight on one month's figures. Frank Dobson, Labour's employment spokesman, said the fall was the first since John Major became Prime Minister, but he suggested it was a 'freak' or 'another statistical fiddle'.

The unexpectedly good news was accompanied by figures showing a sharp rise in new mortgage commitments, to pounds 2.72bn in February. But the Bank of England reported annual growth in the broad measure of money - cash and bank and building society accounts - still depressed last month at 3.3 per cent.

The cost of the wages and salaries needed to produce each unit of output - a key measure of competitiveness - is falling at its fastest rate for 20 years. Unit wage costs in the three months to January were 1 per cent lower than a year earlier, adjusting for seasonal changes. The same output is being produced by fewer employees, who are receiving lower pay rises.

Average earnings grew by 4.75 per cent in the year to January, unchanged on December and the lowest for 25 years.

Unemployment fell in all regions, except London, the North and Northern Ireland. The proportion of the workforce unemployed in the UK dropped to 10.5 per cent.

The Employment Department reported that 13,000 manufacturing jobs were shed in January, the lowest figure for seven months. Job-shedding throughout the economy reached record levels between July and September as companies gave up waiting for post-election recovery. But in the last three months of 1992 job losses slowed in industry while 51,000 people were taken on in services.

Economists were hard pressed to explain February's big fall in unemployment. In the last recession the first fall came a year later, but the number of young people joining the workforce is lower than in the early 1980s, while the weakening of the trade unions may have helped firms shed jobs earlier in this recession.

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