Brexiting UK jobles s figure hits 43-year low

UK unemployment dropped to a new 43-year low in the three months through June but the pace of wage growth eased.

The jobless rate stood at 4pc, the least since February 1975, the Office for National Statistics said yesterday. Economists had expected it to stay at 4.2pc.

The decline helps to explain why the Bank of England raised interest rates this month.

Policy makers believe inflationary pressures are building in the labour market as skill shortages force employers to raise wages to attract and retain staff.

Yet the absence of stronger pay growth so far also raises questions about whether the unanimous decision to put up the cost of borrowing was justified. There was little sign of overall wages stirring in the latest data – the rate slowed to a nine-month low of 2.4pc between April and June – but the BOE sees a pickup toward 3.5pc.

For policy, much also depends on productivity. Without a significant improvement, firms may find their profit margins coming under pressure and increase prices to compensate.

Flash figures for the second quarter show output per hour rose 0.4 pc, leaving productivity up just 1.5pc on the year – below the rates enjoyed before the financial crisis.

The pound initially climbed after the data, before erasing its gains. The market-implied probability of another BOE rate hike in May 2019 edged up to about 45pc, from 39pc on Monday. BOE officials expect unemployment to fall to 3.9pc this year and Governor Mark Carney has signalled that further rate hikes will be needed to return inflation to the 2pc target, assuming Britain avoids a chaotic departure from the European Union next year.

Wage growth excluding bonuses slowed to 2.7pc, the weakest since January but still ahead of inflation.

“There remains precious little sign that wage growth is set to take-off – undermining a key assumption behind the Monetary Policy Committee’s recent decision to raise rates,” said Suren Thiru, head of economics at the British Chambers of Commerce. “The pace at which pay is exceeding price growth remains negligible, and is therefore unlikely to provide much respite to the financially squeezed consumer.”

There were other signs of weakness in the labour market report. While vacancies were at a record, the jobless rate fell thanks to people leaving the workforce, and employment rose by just 42,000, less than half the increase forecast. The employment rate dipped to 75.6pc.

The increase in employment over the past year was driven by UK nationals as foreigners arrive in fewer numbers since the Brexit vote.

There was a record 86,000drop in employment among EU nationals, driven by citizens of the eight countries that joined the bloc in 2004.