UK unemployment rises for first time since mid-2015

UK unemployment rose for the first time since mid-2015 in the three months to February, official data showed on Wednesday.

The number of people in unemployment increased by 21,000 to 1.7m during the period, according to the Office for National Statistics.

The unemployment rate remained at 5.1%, as expected by analysts, its lowest since November 2005.

The report also showed the number of people in employment climbed by 20,000 to 31.41m, well below estimates for a 60,000 increase.

"With employers appearing to have become more cautious in their hiring and the consumer mood darkening, economic growth looks set to slow further in the second quarter, after having likely already eased in the open three months of the year," said Chris Williamson, chief economist at Markit.

Average weekly earnings grew 1.8%, missing forecasts for a 2.3% increase and marking a slowdown from the previous quarter’s 2.1% gain.

Excluding bonuses, earnings were up 2.2%, ahead of forecasts for a 2.1% and in line with the prior three month's 2.2% growth.

The number of people claiming jobless benefits in March was up by 6,700, the first rise since August 2015, surprising economists who had pencilled in a 10,000 decrease.

"Last week the Bank of England said that concerns about the EU referendum had begun to affect the real economy, and the increase in unemployment announced today adds some weight to that hypothesis," said Ben Brettell, senior economist at Hargreaves Lansdown.

"It’s possible businesses are delaying decisions about hiring and investment until after June’s vote, which could lead to a slowdown in the first two quarters of this year."

Brettell said the bigger picture is that the UK labour market remains in reasonable health as the increase in unemployment was not enough to change the jobless rate. However, he noted that wage growth numbers emphasise that there is "very little inflationary pressure" coming from the labour market.

"Indeed continued low price inflation could be depressing wage inflation as it leads workers to accept lower pay settlements – leading to a vicious cycle where both price and wage increases remain depressed."

The Bank of England has been taking wage growth into consideration in determining whether to raise interest rates.

Brettell concluded that while continued weakness places no upward pressure on interest rate expectations, global concerns and uncertainty over the 23 June EU referendum make a hike "extremely unlikely in the short-to-medium term".