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UK wage growth strengthens as jobless rate declines

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UK unemployment fell to its lowest since 2008 in the first quarter and pay growth rebounded in a sign the British labor market is continuing to strengthen.

[LONDON] UK unemployment fell to its lowest since 2008 in the first quarter and pay growth rebounded in a sign the British labor market is continuing to strengthen.

Unemployment based on International Labor Organization methods fell 35,000 to 1.83 million, taking the jobless rate to 5.5 per cent from 5.6 per cent, the Office for National Statistics said on Wednesday. Wages grew by 1.9 per cent, with regular pay jumping 2.2 per cent - the biggest increase since 2011.

With slack in the labor market diminishing amid robust job creation, how long Bank of England policy makers keep interest rates at a record low depends on whether Britain can increase the amount each worker produces. Announcing the bank's quarterly Inflation Report on Wednesday, Governor Mark Carney said spare capacity will be absorbed within the next year as productivity grows only modestly. Investors are predicting the BOE will lift the benchmark from 0.5 per cent by the middle of 2016.

Prime Minister David Cameron won a surprise parliamentary majority last week after campaigning on the Conservatives' economic record. The economy is set for a tenth quarter of expansion, the budget deficit has fallen by more than a half and inflation is at zero, boosting real household incomes for the first time in years.

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How quickly the economy can grow without fueling inflationary pressures hinges on output per hour, which remains lower than before the start of the recession in 2008. The BOE cuts its projection for productivity growth for this year and next, saying it will remain below past rates.

"Productivity, though, is not something that monetary policy determines, and among the many uncertainties we face, the timing and extent of any prospective pickup in productivity remains our most difficult judgment," Mr Carney told a press conference in London.

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