UPDATE: UK Jobless Claimant Total Hits 2-Year High

-- Jobless benefits claimants rise by 6,900 in Jan
-- Claimants total 1.61 million, highest since Jan 2010
-- Wider unemployment rate stays at highest since 1994
-- High unemployment adds to burden on public finances



LONDON (Dow Jones)--The number of people claiming unemployment benefits in the U.K. rose much faster than expected in January, pushing the total to its highest in two years.

The Office for National Statistics said Wednesday the claimant count for jobseekers' allowance rose by 6,900 in January, higher than an upwardly revised 1,900 rise in December and far more than the 500 increase anticipated by economists in a Dow Jones Newswires poll.

That put the total number of claimants at 1.61 million, the highest since January 2010.

The ONS' other, internationally comparable measure of unemployment also rose in the final quarter of 2011 from the previous quarter, albeit by the smallest rate since June.

Unemployment on the International Labour Organization measure rose 48,000 in the three months to December, to total 2.67 million.

That left the rate of unemployment unchanged at 8.4%. The last time it was higher was in the three months to November 1995.

Prospects for the U.K. labor market aren't good, said Vicky Redwood, economist at Capital Economics, a consultancy.

"We continue to expect unemployment to rise much further in response to the weakness in the wider economy," she said.

The figures add to the gloom on the U.K. economy. Rating firm Moody's on Monday said there is a 30% chance it will downgrade the U.K.'s credit rating in the next 18 months, owing to fears around growth.

Higher unemployment as growth slows could hinder the government's debt-reduction plans by curbing its income tax receipts, at the same time as lifting spending on welfare.

But Chancellor of the Exchequer George Osborne, whose austerity plan is widely seen as a factor depressing growth, said Moody's warning makes it all the more important the government pursues its program of slashing billions from public spending plans.

ONS data on wages Wednesday showed consumers are still suffering a squeeze on their incomes that could stifle economic growth, as inflation continues to outpace wage increases.

The ONS said average earnings, excluding bonuses, rose 2.0% in the three months through December, up from an increase of 1.9% in the three months through November. Including bonuses, wage growth was unchanged at 2.0%.

Official figures Tuesday showed the rate of inflation is much higher, despite falling to 3.6% in January from 4.2% in December.

The Bank of England expects further declines in inflation to around 2.0% by the year's end, which could ease the burden on households.