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[LONDON] UK unemployment fell to its lowest rate in more than six years as pay growth picked up in the fourth quarter in a sign that pressure on labor costs may be starting to build.
The jobless rate based on International Labor Organization methods dropped to 5.7 per cent from 5.8 per cent in the period through November, the Office for National Statistics said Wednesday. Pay grew 2.1 per cent, outstripping inflation by the biggest margin since 2008.
The Bank of England has held its key interest rate at 0.5 per cent as inflation slowed to a record low. With slack being used up in the labor market, BOE officials are looking beyond the plunge in oil prices and say the next move in policy is likely to be an increase in interest rates.
"Improving nominal pay, along with falling petrol and food prices, should combine in a powerful cocktail that puts the fizz back in the UK recovery," said Rob Wood, an economist at Berenberg Bank in London. "We expect the BOE to hike rates faster than the markets expect, starting with a first hike in February next year."
The pound jumped after minutes published by the BOE Wednesday showed officials predicting a "fairly sharp" pickup in inflation once the impact of lower oil prices fades. Sterling traded at US$1.5427 at 9:36 am London time, up 0.5 per cent from yesterday.
Economists had forecast the ILO jobless rate would hold at 5.8 per cent, based on the median of 34 estimates in a Bloomberg News survey. In December alone, the jobless rate stayed at 5.6 per cent. Unemployment fell by 97,000 to 1.86 million in the fourth quarter, while the number of people in work rose 103,000 to 30.9 million.
A narrower measure of unemployment showed claims for jobless benefits fell 38,600 to 823,000 in January from December, beating the median estimate for a 25,000 drop. The claimant-count has fallen for 27 months in a row.
In the fourth quarter, total wages grew at their fastest pace since the second quarter of 2013. Excluding bonuses, pay growth cooled to 1.7 per cent from 1.8 per cent. Consumer-price inflation slowed to 0.3 per cent in January from 0.5 per cent in December.