UK jobless rate falls to lowest level in 42 years

Britain’s labour market set a new record for employment in the three months to the end of July, but the rise in the number of people in work was accompanied by a further squeeze in real pay.

The percentage of people unemployed fell to 4.3 per cent in the three months to the end of July, compared with 4.4 per cent in the three months to the end of June, the Office for National Statistics said on Wednesday. The fall established a new record for the lowest unemployment rate since 1975.

However, wage growth, both including and excluding bonuses, did not accelerate from an annual pace of 2.1 per cent.

Analysts had expected unemployment to remain steady at 4.4 per cent and wage growth to increase to 2.3 per cent.

The ONS estimates that real wages were 0.4 per cent lower in the three months to the end of July compared with a year earlier, as consumer prices have increased faster than wages.

Wednesday’s data illustrate the two sides of Britain’s flexible labour market, which has delivered strong employment growth following the 2008 financial crisis but little increase in pay.

Britain’s economy has added nearly 2.5m jobs since the pre-crisis peak in 2008, but wages remain £15 lower per week in cash terms and 3.2 per cent lower after adjusting for inflation than before the crisis.

The data follows Tuesday’s announcement from the UK government that it would relax a 1 per cent cap on increases in pay for workers in the public sector. Prison officers will receive a 1.7 per cent pay increase and the police will get a 1 per cent bonus. Public sector unions said the offer did not go far enough.

The latest figures also heighten the dilemma facing the Bank of England’s Monetary Policy Committee, which will announce its latest decision on whether to raise interest rates on Thursday.

Inflation is rising and unemployment is below the central bank’s “long-run equilibrium” estimate of 4.5 per cent, which would normally be a signal for the bank to raise interest rates. But the absence of pay growth suggests inflation is being imported, rather than generated domestically, as a result of weak sterling.

“While the continued strength of employment will be welcomed by the MPC, the continued absence of a pick-up in wage growth is likely to keep the doves in the majority,” said Andrew Wishart, UK economist at Capital Economics.

Official figures published Tuesday showed inflation reaching a joint five year-high in August that will intensify a squeeze on household incomes, Mr Wishart said. “That would make the risk of a sharper downturn in consumer spending the overwhelming concern to the majority of the MPC members.”

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