Britain’s unemployment rate fell to a five-year low in the first quarter as the economy created work at a record pace, evidence the recovery is sustaining momentum.
The jobless rate measured by International Labour Organization methods dropped to 6.8 percent from 6.9 percent in the three months through February, the Office for National Statistics said in London today. While the data also showed wage growth outstripping inflation for the first time since 2010, it was slower than economists forecast.
Presenting new economic forecasts today, Bank of England Governor Mark Carney signaled policy makers are in no hurry to raise the benchmark rate from its record-low 0.5 percent, saying there’s still “significant slack” in the labor market. Unemployment fell below 7 percent in February, voiding the first phase of his forward guidance. Officials have pledged to refrain from raising borrowing costs until spare capacity in the economy is used up.
“It shows stonking employment growth,” said Alan Clarke, an economist at Scotiabank in London. “I would be surprised if we’re not down at 6.7 percent unemployment in the next month or two and continuing steadily downwards. The real question mark is whether this translates into faster wages or not.”
Clarke said the absence of an acceleration in pay takes pressure off the BOE to raise interest rates sooner. The pound erased earlier gains and was down 0.2 percent from yesterday at $1.6794 as of 10:56 a.m. in London. The benchmark 10-year bond yield fell 5 basis points at 2.63 percent.
The unemployment rate in the first quarter matched the median estimate of economists in a Bloomberg News survey. Jobless claims, a narrower measure of unemployment, fell 25,100 in April, less than the 30,000 median forecast of economists. The fall, the 18th in a row, took the rate to 3.3 percent, the lowest since 2008.
In the first three months of the year, employment rose 283,000 to a record 30.4 million. It was the biggest increase since records began in 1971.
There were 722,000 more people in work than in the first quarter of last year, the biggest annual increase since 1989. Self-employment, which stood at a record 4.56 million, accounted for more than half the gain.
The number of unemployed people fell 133,000 to 2.21 million, the lowest level since the quarter to February 2009. The ILO jobless rate was 6.8 percent in March versus 6.6 percent in February. The first-quarter jobless rate of 6.8 percent compares with 6.3 percent in the U.S. and 11.8 percent in the euro region. There were falls in youth and long-term joblessness.
Today’s data signaled a five-year squeeze on Britons’ living standards is easing. Wages (UKAWMWHO) including bonuses rose 1.7 percent in the first quarter, less than the 2.1 percent median forecast in a Bloomberg News survey of economists. Excluding bonuses (UKAWXTOM), pay gained 1.3 percent, also less than predicted.
With inflation slowing to 1.6 percent in March, it means total wages are growing faster than consumer prices for the first time since the financial crisis, besides a bonus-related blip in 2010.
The figures provide a further boost for Prime Minister David Cameron a week before European Parliament and U.K. local-authority elections. Polls this week showed his Conservative Party overtaking the Labour opposition for the first time since 2012 when voters were asked which party they’d back at the 2015 general election.
“We are starting to see the British economy firing on all cylinders,” Cameron’s Liberal Democrat deputy, Nick Clegg, said in a statement. “The coalition government is not just focused on balancing the books, but also on creating more jobs and growth outside of London and building a fairer society for this generation and the next.”
The central bank forecast today the U.K. economy will grow 3.4 percent this year, little changed from its February prediction, with inflation staying close to the 2 percent target over the next three years. Spare capacity in the economy had “narrowed slightly” in the past three months, it said. Traders pared interest-rate bets, with derivatives known as Sonia contracts now indicating no increase until after April next year.
Outlining why officials think there is slack in the labor market, Carney said the jobless rate is above estimates of the “equilibrium level” and pointed to the 1.42 million people working part-time because they can’t find a full-time job. That’s a rate of 17.7 percent, little improved from two years ago.
“Our slack estimate is in some respects cautious,” Carney told a press conference in London. “It does not reflect that the long-term unemployed have recently been finding work at a faster rate than usual, nor does it allow for any of the unprecedented rise in self–employment, which has accounted for over half of the increase in total employment since last summer, to represent additional ‘hidden’ slack.”
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