The prospect of a summer increase in interest rates from the Bank of England has receded after the latest official figures showed a fall in wage inflation despite a fresh drop in unemployment.
A near-stalling of the economy in the first quarter of 2018 failed to halt jobs growth but had an impact on earnings growth, which edged lower in the three months to the end of April, according to the Office for National Statistics.
Esther McVey, the secretary of state for work and pensions, said: “The employment rate has never been higher – with over 3.3 million people moving into work since 2010.
“It’s a Great British success story with businesses from Exeter to Edinburgh creating jobs – helping, on average 1,000 people find a job each and every day since 2010.”
Yet the ONS report on the state of the labour market showed no sign of mounting wage inflation and some signs of demand for workers slackening.
There were 146,000 more people in work between February and April than in the previous three months, but the ONS said part-time work accounted for 103,000 of the increase. Average hours worked per employee fell slightly while the number of job vacancies held steady.
Unemployment dropped by 38,000 in the three months to April, leaving the jobless total at 1.42 million.
The unchanged unemployment rate of 4.2% was the lowest since 1975, while the proportion of the population of 16- to 64-year-olds in work (75.6%) was the highest since modern records began in 1971.
Despite the fall in unemployment, however, earnings growth including bonuses dipped by 0.1 points to 2.5%, while earnings growth excluding bonuses dipped by a similar amount to 2.8%.
The Bank’s latest quarterly inflation report signalled that the fall in unemployment to its lowest level since the 1970s would lead to stronger earnings growth and necessitate a gradual increase in borrowing costs from 0.5%.
The Bank said the economy would bounce back after virtually stalling in the first three months of 2018 and, as a result, financial markets have been gearing up for an August increase in interest rates to coincide with the publication of the next inflation report.
Although earnings are rising slightly faster than prices, the TUC general secretary, Frances O’Grady, said: “Wage growth is stuck in the slow lane. At this rate pay packets won’t recover to their pre-recession levels for years.
“We need to speed things up. Extending collective bargaining would boost living standards and help workers get a fairer share of the wealth they create.”
Jeremy Thomson-Cook, the chief economist at WorldFirst, said: “The juxtaposition of today’s increase in the employment rate to a record 75.6% and yesterday’s news of lay-offs at both Poundworld and Jaguar Land Rover will be lost on nobody and we think that today’s jobs report could soon be revealed as a high water mark for job creation.”
John Philpott, director of the Jobs Economist, an economic consultancy, said: “The increase in the number of people in work of 146,000 is smaller than in the previous quarter, as is the 38,000 fall in unemployment, though the cooling in market conditions is more noticeable in a fall of 0.3% in the total number of hours worked in the economy, driven by a sharp quarterly increase in the number of people working part-time.”
Philpott added: “Nonetheless, the slight weakening in labour market conditions is much milder than the slowdown in the economy as a whole indicating that the UK’s now longstanding pattern of relatively job rich, low productivity, economic growth remains entrenched.”
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