U.K. Unemployment Falls Below 5% for First Time Since 2005

Are U.K. Jobs Numbers a Pre-Brexit Anomaly?
  • Employment in March-May rose 176,000 to record high level
  • Wage growth excluding bonuses unexpectedly cooled to 2.2%

The U.K. labor market showed continued strength before the country’s decision to leave the European Union.

The unemployment rate fell to 4.9 percent in the three months through May, the lowest since the third quarter of 2005, the Office for National Statistics in London said on Wednesday. Economists in a Bloomberg survey had expected the rate to stay at 5 percent. The number of people in work rose 176,000, the most this year, to a record 31.7 million.

There was a mixed picture from wage data, with basic pay growth unexpectedly slowing to 2.2 percent from 2.3 percent. Total earnings increased 2.3 percent, up from 2 percent.

All the data were collected before June 23, meaning they don’t reflect any impact on the economy from the Brexit vote. With measures of consumer and business sentiment weakening since the referendum, Bank of England officials are debating whether they need to provide support with a fresh round of stimulus.

The pound climbed after the data were published, appreciating 0.5 percent to $1.3185 as of 10:36 a.m. London time.

BOE Report

The BOE said Wednesday that a majority its business agents -- comprising a network of firms across the U.K. -- do not expect an immediate impact from the vote on their hiring or investment plans. A third said there would be some negative impact on those plans over the next 12 months.

“As yet there was no clear evidence of a sharp general slowing in activity,” the BOE said in the report. For many firms surveyed “the result of the referendum was a shock; few had contingency plans and so for the time being were seeking to maintain ‘business as usual’,” it said.

Key to policy makers’ deliberations will be the outlook for the labor market and its implications for inflation. The BOE’s Monetary Policy Committee said last week that wage growth had “picked up somewhat in the months ahead of the referendum.” Official Martin Weale this week cited strengthening wages, along with weak productivity, as a potential argument against cutting interest rates.

Joblessness in the U.K. dropped by 54,000 to 1.65 million in the latest three months. In May alone, the jobless rate was at 4.8 percent. 

Jobs Outlook

Chancellor of the Exchequer Philip Hammond -- who this week said the BOE should be the first line of defense in response to Brexit -- said that the wage figures show the U.K. is adjusting to the referendum decision “from a position of economic strength.”

Jobless benefits, a narrower measure of unemployment, rose 400 in June and the rate was at 2.2 percent. In May, claims increased 12,200 instead of the 400 drop previously estimated. The ONS said the revision was largely due to data on universal credits.

“Strong job growth won’t last,” said Samuel Tombs, an economist at Pantheon Macroeconomics. “Surveys of employers’ hiring plans weakened sharply in the run-up to the referendum -- and likely have deteriorated further since the vote -- so we expect employment growth to ease sharply ahead.”

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