U.K. unemployment fell to the lowest in more than seven years in the third quarter and the number in work rose to a record, extending an improvement in the labor market that the Bank of England expects to continue.
The rate fell to 5.3 percent, the lowest since the spring of 2008, the Office for National Statistics said Wednesday in London. Economists in a Bloomberg News survey forecast that it would be unchanged at 5.4 percent. Employment jumped 177,000 to 31.2 million.
Despite the improvement in the headline numbers, the report also showed some weakening in the pace of wage growth. Earnings excluding bonuses rose an annual 2.5 percent in the quarter, down from 2.8 percent in the previous three months and missing forecasts for a reading of 2.6 percent. Total pay was up 3 percent, thanks to a 15 percent surge in bonuses.
With inflation stagnant, U.K. consumers have been enjoying a period of real income growth of about 2.3 percent this year, helping to support the economy. The BOE says risks to domestic demand are “broadly balanced,” though it’s keeping interest rates at a record low as a weaker global outlook unnerves policy makers.
Carney Comments
The outlook for the labor market is a key metric for BOE Governor Mark Carney. The central bank said last week that increases in employment will slow and it sees a “modest further fall in unemployment.” The rate will probably average 5.2 percent next year and 5 percent in 2017, it said. Chancellor of the Exchequer George Osborne said the latest data were “excellent news” and move the economy closer to his goal of full employment.
The decision on when to increase interest rates from a record low “will get more difficult” for the Monetary Policy Committee, “as the economy progresses” and “as wages pick up,” Carney told Sky News in an interview on Wednesday. “That will be good news. That’s a sign of continued progress in the U.K.,” he said.
Inflation Implications
If productivity improves, that will allow the economy to support faster pay growth without upward inflation pressure. But if labor supply dries up, that could force companies to lift pay to fill vacancies, stoking price gains.
“The broader message is that the economy is approaching its supply potential, with limited spare capacity remaining,” said Dan Hanson, an economist at Bloomberg Intelligence. “That has implications for pay and inflation.”
According to the latest data, part-time work accounted for four-fifths of the increase in employment in the third quarter. However, the number of people working part time because they couldn’t find a full-time job fell by 30,000 to the lowest since early 2011.
The ONS said the figures “continue the recent strengthening in the labor market.” On a single-month basis, the unemployment rate fell to 5.2 percent in September.
Claims for jobless benefits, a narrower measure of unemployment, rose 3,300 in October. The jobless rate on that basis held at 2.3 percent.
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