Unemployment dropped to its lowest rate since 2005 in April, to a level which without the looming Brexit vote would set off interest rate warning bells at the Bank of England.
The unemployment rate fell to 5% from 5.1% in March, while the number of jobs in the economy jumped 55,000 from March to set a record high employment rate of 74.2%. Once the jobless rate falls below 5%, the Bank believes wage pressures start to build.
The strength of the jobs market was seized on by the chancellor, George Osborne, who tweeted: “At 5%, unemployment at its lowest rate for 11 years – let’s not put that at risk by irreversible decision to quit EU.”
Campaigners for Britain to leave the EU were expected to claim the figures showed employers were relaxed about a Brexit vote, but John Philpott, director of the JobsEconomist, said the increase in the total number of people employed relied on a huge increase in self-employment.
“The UK private sector effectively stopped hiring in the spring. Employees account for just 5,000 of the 55,000 increase in total employment in the three months to April, almost all of which is due to a rise in self-employment,” he said.
“And once one strips an increase in public sector employment out of the latest figures it becomes clear that the private sector has for the moment called a halt to job creation.”
City economists were more relaxed about the figures, with most saying it was a sign of the economy’s underlying strength and, with a vote to remain, could force the Bank of England to raise rates as soon as next year.
James Knightley, an economist at ING Financial Markets, said: “Brexit risks obviously nullify this report, but should the UK stay then the data does help build the case for a rate rise early next year.
“There are still more job vacancies than there are people claiming unemployment benefits, which suggests a degree of labour market tightness. This should be good news for pay, which will help generate medium term and inflation pressures.”
Officials on the Bank’s interest rate setting committee have been waiting several years for a strong pickup in annual wages growth to about 4%. The most recent figures will have proved disappointing after total pay excluding bonuses, only nudged higher to 2.3% from 2.2% in the rolling three-month to three-month figures to April favoured by the Office for National Statistics (ONS).
Wages growth including bonuses was even lower 2%, but jumped 2.5% in the more volatile month-on-month figure to April. City economists had pencilled in a fall in total wages growth to 1.7%.
Chris Williamson, chief economist at Markit, the financial information and services company, said the government’s “national living wage”, which pushed the minimum hourly rate to £7.20 from £6.70 for over-25s, could be behind much of the small rise in wages.
He said: “Recruitment companies have reported that although the introduction of the living wage has pushed average wage rates higher, the increase in staff costs has also led to a pullback in hiring at some firms. Slower economic growth and rising uncertainty may also have hit hiring in recent months, suggesting the labour market data for May and June may disappoint.”
Williamson said many areas of the economy had slowed over the past year: “The business surveys are pointing to a further slowing of economic growth in the second quarter, down to 0.2%, as a result of weaker global demand and intensifying uncertainty regarding Brexit. Companies have reported that both investment and hiring have been affected, albeit often temporarily until the outlook clears.”
The employment rate, which tracks the proportion of people aged 16 to 64 who were in work, was 74.2%, the joint highest since comparable records began in 1971, the ONS said.
Unemployment fell to 1.67 million, 20,000 fewer than the figure for the three months to January 2016, and 148,000 fewer than the same period last year.
Last month, the number of people employed increased by 44,000 to 31.58 million, while total pay including bonuses edged up by 2%.
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