UK unemployment dips unexpectedly, but growth in wages slows
Unemployment fell 0.2 percentage points to 4.2 per cent in the three months to June
BRITAIN’S economy created more jobs than expected, delivering a surprise drop in the unemployment rate.
Unemployment fell 0.2 percentage points to 4.2 per cent in the three months to June, the Office for National Statistics (ONS) said on Tuesday (Aug 13). Separate data showed regular wage growth cooled to 5.4 per cent, down from 5.8 per cent in the previous period. It was the weakest year-on-year pay increase since the summer of 2022.
The figures leave a puzzle for the Bank of England (BOE), which is watching the labour market carefully for signs of inflation as it weighs when to cut interest rates again. While the jobs figures have been distorted by problems with the labour market survey, the BOE has been concerned a shortage of workers will drive up wages and inflation.
The pound rose after the data, trading 0.2 per cent higher at around US$1.28.
The labour market report is the first of a series of data due out this week that will set the tone for the BOE in the lead up to its next policy decision on Sept 19. Investors are betting on the next cut arriving in November, but BOE officials have said they’ll move carefully while they assess the strength of domestic price pressures in the economy.
The current betting is for no change next month. Inflation figures due out on Wednesday are likely to show the first increase in price pressures this year, and a much stronger reading could undermine the case for a further loosening from the BOE.
Some officials have signalled their lingering concerns over strong wage growth. Catherine Mann – who was among four hawkish rate-setters to oppose a change earlier this month – warned on Monday that an “upward ratchet” in wages and prices will “take a long time to erode away”.
BOE officials have also been wary over interpreting the jobs data after the ONS temporarily suspended its Labour Force Survey last year. It is in the process of overhauling the survey but the introduction of new “transformed” figures has been delayed until next year.
The central bank expects unemployment to hit 4.8 per cent in the coming years, remaining below the peaks seen in the pandemic and financial crisis.
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