Not exactly unexpected news this morning, but for the first time since 1997 the UK unemployment rate has risen above two million.

According to the National Statistics Website, the number of jobs in December 2008 was 31.32 million, down 203,000 on the quarter and down 284,000 over the year. This is the largest quarterly fall in jobs since September 1992. Most sectors have shown falls in jobs over the quarter with the largest fall occurring in finance and business services (down 102,000).

They also reported that the unemployment rate was 6.5 per cent for the three months to January 2009, up 0.5 over the previous quarter and up 1.3 over the year. The number of unemployed people increased by 165,000 over the quarter and by 421,000 over the year, to reach 2.03 million. The unemployment level and rate have not been higher since 1997.

Separate reports released by the British Chambers of Commerce (BCC) and CBI have both predicted that unemployment will rise above around three million in the later parts of 2009 and into 2010.

Although the news is not really a massive surprise for any of us, it is a clear indication of the struggle the country is facing with respect to keeping business flowing and people in jobs.

But, we do have to look at the bigger picture in this report. In December 2008, employment was standing around 31.32 million, which is still the large majority of this countries work force in employment. When you look at the figures, they do look worrying and deeply disturbing, but when you take into account that even if the unemployment rate does rise to 3 million next year, will still leave, at this moment in time, 30 million people still in work. Or, out of 100% of the nation’s work force, 92% should still be employed in 2010, if current reports are anything to go by.

When you compare this to other countries, the UK is actually doing quite well, despite recent indications that the UK is going to be hit the hardest by the current recession and economy downfall.

Anybody currently facing redundancy, going through it or looking for a new job after suffering it will of course see things very differently, and quite rightly so, but in the grand scheme of things, well over 20 million people out of a work force of around 25 million people will still be bringing home a wage packet for the rest of the year and beyond.

And with news of various supermarkets and fast food outlets looking to create thousands of jobs within the next few years, we should see a few more of the unemployed being able to find a job, albeit depending in your area and skill set.

Safe haven currencies have been the major benefactors overnight as markets were battered with more evidence of economic downturn. Sterling has declined against the US Dollar, Euro and Yen this morning as the BCC figures describe the state of the UK economy as ‘frightening’.

Pound Sterling - UK Markets

The Pound has sunk to 1.46 against the US Dollar and is over 1% lower against the Yen as British Chamber of Commerce and BRC statistics provide evidence of the deepening economic downturn.

Monthly snapshots released yesterday showed retail sales down 3.3% from last December and widespread contraction across the service and manufacturing sectors. Home sales, factory orders, manufacturing sales and job prospects have all reached record lows and the BCC warned of ‘frightening deterioration’ across all economic sectors. Growth forecasts have been revised to -2.4% in 2009. The collapse in confidence has led to predictions GDP will contract 1.5% in Q4 and even exporters are not benefitting from the low Pound as global downturn forces foreign markets to contract. With the cost of borrowing already at record lows the MPC is running out of conventional stimulus policies and may move to more unorthodox methods to stimulate the economy. Balance of trade figures released this morning show a -£4.5 billion deficit which could provide a source of weakness for the Pound throughout the day.

US Dollar - US Markets

The US Dollar strengthened overnight to 0.68 versus the Pound and 0.75 versus the Euro as risk aversion dominated markets.

News of the deepening global recession has created a negative trend in equity markets leading investors to sell off the higher yielding currencies in favour of the traditional safe havens. A Bloomberg Survey has announced the US economy is likely to contract 1.5% in 2009 with the Federal Reserve not able to raise interest rates until 2010. Trade balance and consumer confidence figures out today could hamper market confidence even further.

Euro - European Markets

The Euro reached a one month low against the US Dollar and Yen overnight as the Standard and Poor’s announced it may cut Spain’s credit rating. Against the Pound, the Euro is up to 0.90 as the Pound has been knocked by the ‘frightening’ state of the UK economy.

Falling inflation rates and negative economic data in the Eurozone is showing the Euro is not as well positioned to weather the recession as initially thought. Market perception at present is that the ECB has dragged its feet in providing interest rate cuts and will have to act now to stimulate the Eurozone economy. Weakening of the Euro/Sterling rate is to some extent a correction of the overheated selling we saw during the Christmas period. Industrial production figures are due for the Eurozone tomorrow with the ECB decision on Thursday.

Other Currencies - Highlights

The Aussie Dollar fell to two week lows against the US yesterday as investors sought safe haven currencies. Negative figures from the US economy are pushing down growth forecasts and commodity prices internationally which has a strong bearing on the strength of the Aussie and the South African Rand. The Kiwi also declined against the Pound and US Dollar, affected by increased risk aversion. Unemployment figures are due in Australia on Thursday.