UK unemployment rate remains at historic low but wage growth lags behind inflation

Britain's unemployment rate hit a new low in the quarter to August 2017, while wages increased slightly more than expected but remained firmly behind inflation, new figures have shown.

The number of jobless people fell by 52,000 from the previous quarter to 1.44 million in the three months to August, according to the Office for National Statistics (ONS). Unemployment was unchanged from the 4.3% recorded in the previous month, which was the lowest on record since 1975.

Average weekly earnings rose by 2.2% year-on-year, in line with the gain recorded in the previous month and slightly above the 2.1% figure analysts expected.

Bonuses held steady at 2.1%, marginally above the 2% forecast. However, when the impact of inflation is factored in, real weekly wages fell by 0.3%, when including bonuses and by 0.4% when excluding bonuses, compared with a year earlier.

"Our economy is helping to create full time, permanent jobs which are giving people across the UK the chance of securing a reliable income," said Minister for Employment, Damian Hinds.

"We've boosted the income for people on the lowest pay by increasing the National Living Wage and delivered the fastest pay rise for the lowest earners in 20 years. That's great progress and we're determined to help more people flourish in the world of work."

Economists have previously warned the squeeze on households was being exacerbated by subdued wage growth and data released yesterday showed inflation jumped to the highest level since April 2012.

Meanwhile, the number of employed workers rose more than expected, climbing by 94,000 to 32.1 million in the quarter to August, compared to the previous three months. The figure was 317,000 higher than in the corresponding period last year but lower than analysts' expectations for a 148,000 gain.

The ONS added that the employment rate – the proportion of people aged from 16 to 64 who were in work – stood at 75.1%, up from 74.5% in the corresponding period a year ago and just below the 75.3% recorded in the previous month, which was the highest since comparable records began in 1971.

Rate hike to go ahead

The latest unemployment report is unlikely to deter the Bank of England from raising interest rates for the first time in a decade, at its next meeting on 2 November.

"However, the prospect of raising interest rates when real wages are in negative territory will make this potential hike a tricky one for the BoE to justify," said Kathleen Brooks, research director at City Index.

Brooks added the BoE was facing the difficult conditions: "Hike rates because inflation is high and unemployment is low, however, if you hike rates now you could put extra pressure on the consumer and a sharp break on the economy as we move into the end of the year."

However, Samuel Tombs, senior economist at Pantheon Macroeconomics, argued the latest figure continued to give the Monetary Policy Committee reasons both to tighten policy and to hold fire in November.

"On the one hand, the rate at which labour market slack is being absorbed has slowed [and] the number of job vacancies has flatlined, consistent with only weak growth in employment ahead," he said.

"The recent fall in consumer confidence, meanwhile, likely will mean that fewer workers quit for new positions, easing the pressure on employers to pay staff more to retain them.

"Accordingly, we doubt that August's uptick in wages is the start of a stronger trend, but it might be the last straw for some members of the MPC itching to raise rates."