Olympics boost helps cut UK unemployment to 2.58m

Unemployment has declined for a fourth successive month to its lowest level since last summer – 2.58 million people – as the Olympics helped offset the flat-lining economy and continued turmoil in the eurozone.

The Office for National Statistics said the number of people looking for work had fallen by 65,000 in the three months to May, driving the unemployment rate down to 8.1%, from 8.3% three months earlier. The ONS said the strong performance of London – with the capital registering 61,000 more people in employment over the period – indicated an Olympics link.

Falling unemployment will be welcome news for George Osborne, whose economic policies have come under fierce scrutiny after the International Monetary Fund slashed its growth forecast for the UK this year to just 0.2%.

Howard Archer, of consultancy IHS Global Insight, said: "The labour market is displaying impressive resilience given the very real likelihood that the economy suffered a third successive quarter of contraction in the second quarter." He suggested the boost to employment from the Olympics may have helped to contain unemployment.

The more timely claimant count measure of unemployment, which tracks the number of people receiving Jobseeker's Allowance, gave a conflicting signal, rising by 6,100 in June, to 1.6 million.

However, the ONS said that number may have been boosted by changes to the benefits regime for lone parents and incapacity benefit claimants, some of whom have been shifted to out-of-work benefits in a bid to bring them into the labour force. The number of women claiming JSA increased by 8,000, to 530,700, the highest level since 1995, and the ONS said the rise was likely to have been partly driven by the benefits rule-changes.

Youth unemployment, which the coalition government has sought to tackle through Nick Clegg's Youth Contract, has fallen by 10,000, the ONS said. The jobless rate for 16 to 24-year-olds slipped to 21.9% in the three months to May, from 22.1% three months earlier.

However, the squeeze on households' spending power is continuing, with average incomes rising at an annual rate of 1.5% in May, up just 0.1 percentage points on a month earlier. Inflation has fallen, according to separate figures released by the ONS on Tuesday, but it remains at 2.4%, suggesting many families are still seeing their living standards eroded.

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