U.K. Jobless Claims Drop by Most Since 1997
U.K. jobless claims fell the most in 16 years last month as a wider measure of unemployment remained at 7.7 percent amid signs that the labor market is improving.
Claims for unemployment benefit fell 41,700, the most since June 1997, the Office for National Statistics said in London today. The decline exceeded the 25,000 median forecast in a Bloomberg survey. The jobless rate as measured by International Labour Organisation standards was unchanged in the three months through August, as economists forecast.
The data may reinforce investor speculation that unemployment will fall toward the level that could lead to a Bank of England interest-rate increase faster than policy makers forecast. Governor Mark Carney has pledged to refrain from raising the key rate until joblessness falls to 7 percent, something officials don’t expect to happen until 2016.
“With business surveys pointing to robust economic activity, we suspect that employment will continue to rise and unemployment will trend lower,” said James Knightley, an economist at ING Bank NV in London. “We remain optimistic on the U.K.’s prospects,” he said, adding that unemployment could fall below the 7 percent threshold in late 2014 or early 2015.
The pound remained higher against the dollar after the data were published and was trading at $1.6027 as of 10:21 a.m. London time, up 0.2 percent on the day. The 10-year government bond yield was up 2 basis points at 2.82 percent.
The U.K. unemployment rate of 7.7 percent in the three months through August compares with 12 percent in the 17-nation euro area and 7.3 percent in the U.S.
U.K. payrolls rose 155,000 to a record 29.9 million in the three months through August and job vacancies climbed to the highest since 2008 in the quarter through September. Unemployment fell by just 18,000 to 2.49 million people, suggesting the economy is struggling to create enough jobs for people joining the workforce. The inactivity rate fell to the lowest since 1991.
The drop in jobless claims last month was the 11th in succession. The claimant count declined to 1.35 million, taking the rate to 4 percent from 4.2 percent. Both the level and the rate were the lowest since January 2009. In August, claims plunged 41,600 instead of the 32,600 initially estimated.
After the economy grew 0.7 percent in the three months through June, business surveys suggest the recovery strengthened in the third quarter. In services, which account for about three quarters of the economy, employment grew at close to its fastest pace in six years in September.
Today’s ONS report showed that pay growth slowed to 0.7 percent in the three months through August from 1.2 percent, highlighting the pressure on living standards as inflation runs at 2.7 percent. Public-sector pay fell 0.5 percent, the first decline since comparable records began in 2001.
Excluding bonuses, pay growth slowed to 0.8 percent in the quarter through August, down from 1 percent in July and matching the record low posted in March, the ONS said.
Retailer Carpetright Plc (CPR) said on Oct. 4 that full-year profit will fall short of its expectations amid “volatile” U.K. trading. Like-for-like sales fell 2.5 percent in the 10 weeks to Sept. 29.
“While the quantities side of the labor market looks increasingly positive, there is very little sign at all this is resulting in wage pressure,” said David Tinsley, an economist at BNP Paribas SA in London. “For now real earnings per head continue to be squeezed and the whole-economy pay packet is relying on employment growth to offset this.”
Since Carney introduced forward guidance on Aug. 7, short-sterling futures have fallen as investors added to bets on a BOE rate increase from the current record-low 0.5 percent. The implied yield on the contract expiring in December 2014 was at 0.9 percent today, up from 0.68 percent on Aug. 1.
A Bloomberg survey published last week showed 21 of 34 respondents saw the jobless rate reaching the threshold by the end of 2015. Five of those predict it happening late next year. The debate over how fast unemployment will fall centers on productivity and how its pace of growth affects hiring.
Figures produced on an experimental basis show the ILO jobless rate climbed to 8 percent in August from 7.7 percent in July. The ONS says the single-month data are volatile and should be treated with caution because they are based on a more restricted sample than the quarterly figures.
In the latest three months, the number of people looking for a job for more than a year fell, while joblessness among 16-24-year-olds was little changed at 958,000.
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