UK employment grew to a record high, while wage growth unexpectedly eased at the end of 2016 that is likely to cause the Bank of England to worry more about the impact of rising inflation on household incomes in the coming months.
The number of Britons in work grew by 37,000 persons sequentially in the three months to December to 31.83 million, figures from the Office for National Statistics showed Wednesday. The employment rate was 74.6 percent. Both figures were the highest since records began in 1971.
Average earnings, including bonuses, rose 2.6 percent year-on-year in the December quarter after 2.8 percent gain in the previous three months. Economists had forecast 2.8 percent increase. Excluding bonuses, wage growth eased to 2.6 percent from 2.7 percent. Pay growth slowed for the first time since July 2016.
Wage growth outpaced inflation that accelerated to a two-and-a-half year high of 1.8 percent in January, nearing the central bank's 2 percent target, as a weak pound pushed up import prices.
"The Bank of England has said that there are "limits" to how much above-target inflation can be "tolerated"," ING Bank economist James Smith said.
"But we think it is the effect that rising inflation will have on household incomes that will really matter in the end for the MPC."
Smith expects the central bank to remain on hold this year and next.
ONS economists said that after adjusting for the recent inflation surge, real wage growth was 1.4 percent, both including and excluding bonuses, the weakest pace of growth since the three months to December 2014.
The number of unemployed fell by 7,000 in the fourth quarter to 1.6 million, the lowest since early 2006. The ILO jobless rate for the quarter was 4.8 percent, unchanged from the previous three months and in line with economists' expectations.
The latest jobless rate was the lowest since the July to September quarter of 2005. A year ago, the rate was 5.1 percent.
The number of those seeking jobless benefits, known as claimant count, dropped by 42,400 month-on-month to 745,000 persons in January, while economists had forecast an increase of 500 persons.
According to the ONS, the claimant count data would be volatile due to the roll out of the Universal Credit benefit system over the coming months.
The claimant count rate fell to 2.1 percent in January from 2.3 percent in December. The rate was the lowest since February 2016, when it was at the same level. Economists had forecast the rate to remain unchanged in January.
The ONS economists commented that the increase in the number of employed was smaller than the recent past and the steadiness seen in the number of vacancies since early 2015 suggest stable labor demand.
They also noted the jobless rate at its lowest in more than a decade and subdued wage growth raises questions over the amount of spare capacity in the UK labor market.
The unemployment rate, and the ratio of unemployment to vacancies, in particular, both suggest that the labor market is currently tight, they added.
by RTT Staff Writer
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