Britain’s jobless rate has dropped to 6.2 per cent after the biggest fall in unemployment in 16 years, but there is still little sign of a recovery in workers’ pay packets.
Official data on Wednesday showed a continuation of the two trends that have dominated the UK’s labour market in the past few years and baffled economists: unemployment is tumbling, but that has come at the cost of poor wage growth and terrible productivity.
Wednesday’s data showed there were 2.02 million people unemployed between May and July, 146,000 fewer than in the previous three months and almost half a million lower than a year ago – the sharpest annual fall since 1998.
The jobless rate fell from 6.4 per cent to 6.2 per cent, a bigger drop than economists had expected.
Employment rose more slowly than unemployment fell. There were just 74,000 more people in work than in the previous three months, the slowest growth since April to June 2013.
There was also a slight rise in the inactivity rate - the proportion of people who are neither working nor looking for work.
Meanwhile, wages were just 0.7 per cent higher than a year ago after excluding bonuses, the same as last month and the lowest pay growth on record. Real wages have been falling in the UK for five years, pushing down living standards to their lowest in a decade.
These mixed signals from the labour market have puzzled the Bank of England and divided its rate-setting Monetary Policy Committee.
Seven of the nine MPC members voted in September to hold rates at record lows, saying weak wage growth showed there was still plenty of “spare capacity” for the economy to grow before pushing up inflation. Two members voted to raise rates, arguing wage inflation might simply be lagging the improvements in the labour market.
In a speech this month to the Trades Union Congress, Mark Carney, the BoE governor, said he thought real wage growth would resume “around the middle of next year and then to accelerate as the unemployment rate continues to fall”.
- Copyright The Financial Times Limited 2014
