Unemployment Falls Sharply 
A worrying picture was painted today of the state of the UK’s labour market with news that the number of people claiming Jobseeker’s Allowance in May rose at its fastest pace in two years.

However, according to the Office of National Statistics (ONS), unemployment figures fell by 88,000 to reach 2.43 million, which is the largest quarterly drop since summer 2000, taking the employment rate down from 7.9 per cent to 7.7 per cent.

The rise in the number of people claiming unemployment benefits, for the third month in a row, was unexpected. Analysts have cautioned that some of the rise may be due to changes in benefit rules.

The statistics also revealed that more people are entering into part-time work due to failing to find full-time work. The ONS said the number of “under-employed” increased by 46,000 in the three months to April to reach 1.21 million, which is the highest figure since records began in 1992.

According to the ONS, the number of people who left unemployment was almost matched by the number who entered new jobs with the employment total reaching 29.24 million.

Chris Grayling, Employment Minister, said: "This is another encouraging set of figures and a very welcome drop in unemployment. It's also good news that employment is going in the right direction with half a million more people in private sector jobs compared to this time last year.”

Private sector employment rose by 520,000 during the course of 12 months to the first quarter of 2011. The public sector cut numbers by 143,000, leaving left total employment up by about 376,000.

Howard Archer, chief economist at IHS Global Insight, said: "The labour market is currently showing resilience in the face of a struggling economy, but the key question is can it last? We have serious doubts about this and suspect that unemployment will head up in the second half of the year as public sector jobs are increasingly pared and private sector companies become more cautious in the face of persistently sluggish growth."

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Inflation Remains the Same  
The UK inflation rate remained at its two-and-a-half year high of 4.5 per cent in May.

A fall in the cost of travel helped to keep the rate from rising even further as it compensated for the continuing rise of food prices.

Figures released by the Office for National Statistics showed that consumer prices rose by 0.2 per cent and the annual increase in the cost of living as measured by the consumer prices index remained at more than double the Bank of England's 2 per cent target.

The steady reading follows the unexpected strong jump in April. This was due to the increased prices set by travel providers and airlines in the run-up to Easter and the extra holiday for the Royal Wedding.

The figures also showed that "core inflation", which takes out food and energy, fell from 3.7 per cent to 3.3 per cent in May.

With the inflation rate remaining unchanged, pressure will have eased for the Bank of England to raise interest rates from 0.5 per cent. However, the Bank of England has warned that inflation may hit 5 per cent later this year before falling back towards target by 2013.

The central bank is worried that people will put more pressure on employers for pay rises if they expect inflation to remain high. This would then lead to higher prices, which is known as a wage-price spiral.

Consequently, the Bank of England said that there are very few signs that inflation expectations have affected price or wage setting behaviour.

Hetal Mehta, UK economist at Daiwa, said: "While there was no upside surprise on the headline CPI figure, inflation still remains well over the Bank's target and is likely to rise even further in the next couple of months as higher commodity prices feed through. Nevertheless, the current inflationary forces are largely temporary in nature, and a marked fall in January next year is expected once the VAT increase falls out of the calculations.

"As such, we still think the Bank will look through the short-term spike. And the fact that core inflation fell to 3.3 per cent will be reassuring to the Bank, and further diminishes the prospects of a rate increase this year."

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Compensation for PPI Claimants 
Customers of Barclays Bank, who were mis-sold payment protection insurance (PPI), are to be reimbursed the total value of all premiums along with 8 per cent interest.

PPI customers of Barclays who made a complaint before April 20 are to be fully compensated following a judicial review decision. Barclays agreed to process all of the complaints, including those that were put on hold due to having to wait for the outcome of the High Court judgment.

In a statement, a spokesperson for Barclays Bank said: “We have said before that when we get things wrong, we apologise, and work hard and work fast to put them right as quickly as possible.

"Working in close co-operation with the Financial Services Authority and the Financial Ombudsman Service, and in recognition of the delay customers have experienced whilst awaiting the outcome of the High Court judgment, we can confirm that we are contacting customers whose complaint was put on hold on or before 20 April with an offer to settle their complaint in full as a gesture of goodwill."

This week, letters will be sent out to PPI customers confirming that they will be reimbursed, and then on August 31, customers will receive a further letter with full details of their compensation.

Peter Vicary-Smith, chief executive of Which?, said: “Banks have a lot to do to rebuild their reputation after over a decade of mis-selling PPI and then mishandling complaints about it.

"It’s fantastic to see Barclays stepping up in this way, acknowledging their mistakes and refunding customers what they’re owed, no questions asked. Hopefully this will have a domino effect and other banks will follow suit – the sooner the banking industry can consign the PPI mis-selling scandal to the history books, the better.”

To help banks handle their PPI complaints, the Financial Services Authority (FSA) today agreed to temporary arrangements for Barclays, Lloyds Banking Group and RBS, to ensure that they are able to handle the complaints properly. Arrangements include extending the periods of time banks have to deal with the backlog of on hold PPI complaints and the vast amount of new complaints.

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Investigations on Evaders 
Following the closure of its recent tax amnesties, HM Revenue & Customs has launched 16 criminal investigations over tax evasion.

Over 50,000 voluntary disclosures by professionals were received by the HMRC as a result of the taxman’s amnesty - the Offshore Disclosure Facility (ODF) and New Disclosure Opportunity (NDO) - gaining the taxman nearly £500m back in unpaid taxes. The Tax Health Plan (THP) also saw the taxman gain a further £10m back following 1,500 disclosures from medical professionals.

The ODF also raised £91m and the NDO £6m through subsequent investigations. On top of the 16 criminal investigations, which have arisen following the crackdown on tax evasion, the HMRC are also looking into 3,000 further leads.

Gary Ashford, head of tax investigations at RSM Tenon, said: "HMRC is sticking to its word to try and deliver a five-fold increase in prosecutions by opening these criminal investigations, and this is a clear indication that they are stepping-up their fight against tax evasion and non compliance."

The next step for the HMRC is a crackdown on people holding overseas bank accounts and an online register of tax evaders will see evaders being named and shamed online.

An HMRC spokesman said: "HMRC has now successfully launched two major campaigns to address significant risk areas for HMRC such as offshore tax evasion. Campaigns are focused on changing customer behaviour and bringing more people into compliance in a simple, straightforward way and keeping them there.

"Several thousand more offshore-related enquiries related to the NDO and the information collected from banks by HMRC on offshore customers have already started.”

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Fighting Talk 
Just hours after Vince Cable’s warning to banks about missing lending targets to SMEs, the UK’s most senior bankers gave their side of the story. As each banker gave evidence to the Treasury Select Committee, deep divisions emerged between the bankers over the reform of the banking industry.

Bob Diamond, the chief executive of Barclays, Stephen Hester, chief executive of Royal Bank of Scotland, the chairman of HSBC, Douglas Flint and António Horta-Osório, the newly appointed chief executive of Lloyds, each addressed the Treasury Select Committee.

Stephen Hester of Royal Bank of Scotland warned that the value of the taxpayer's 84% stake in the bank could be reduced due to the proposals of the Independent Commission on Banking (ICB), which aims to "ring-fence" retail operations.

Mr Hester said: "I think if we went down that route there will be greater costs, and those costs would be divided between shareholders, customers and the economy as a whole”.

He also spoke of the "moral hazard" of ring-fencing high street operations away from a financial institution's riskier investment banking operations, which he said could "create a protected beast that the government will support”.

Douglas Flint, chairman of HSBC, took a more positive approach by presenting proposals of how ring-fencing could be achieved to the Treasury.

However, chief executive of Barclays, Bob Diamond, warned that plans to ring-fence retail banking could make an implicit state guarantee for banks "explicit".

António Horta-Osório, the new boss of Lloyds Banking Group, seemed to be in favour of ring-fencing, saying that the advantages "reduced the complexity" of banks.

The idea for ring-fencing was initially made in the ICB's interim report published in April. The report suggested the UK retail banking businesses of large banks should be put into separate units, making them isolated from the rest of a bank incase of an event where the lender got into trouble.

Following his warning to banks over the level of lending, Mr Cable has since been accused by the Unite union of issuing "empty threats" to put a tougher stance on tax on banks if they did not meet their target to lend £190bn to SMEs.

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