U.K. Wages Post First Drop Since 2009 as Jobless Rate Falls

U.K. unemployment fell further in the second quarter and wages declined for the first time since 2009 as the economy continued to create jobs without generating inflationary pressures.

The jobless rate fell to 6.4 percent, the lowest since the fourth quarter of 2008, from 6.5 percent in the three months through May, the Office for National Statistics said in London today. The result matched the median forecast in a Bloomberg survey. Wages dropped 0.2 percent from a year earlier, the first quarterly decline for the more than five years.

The data came as the Bank of England published its latest forecasts today. Wage growth is “remarkably weak” and there is enough slack in the economy to keep the benchmark rate at a record-low 0.5 percent for now, Governor Mark Carney said. With inflation accelerating to 1.9 percent in June, real wages for many Britons are continuing to decline.

“We’ve got slack falling very quickly but wages remaining weak, giving ammunition to the hawkish and the dovish camps” at the BOE, said Rob Wood, an economist at Berenberg Bank in London and a former official at the central bank. “If you’re a dove, you say ‘wage growth hasn’t picked up -- look at earnings growth’ and see that it remains weak, so no sign of inflationary pressure.”

BOE Assessment

The pound fell to its lowest against the dollar since June. It traded at $1.6718 at 11:19 a.m. in London, down 0.6 percent from yesterday. The two-year gilt yield fell 5 basis points to 0.75 percent.

“Now is not the time” for a rate increase, “given the degree of slack, the weakness of wages, the start of some of the recovery of productivity,” Carney told a press conference in London after the BOE cut its fourth-quarter wage-growth forecast to 1.25 percent from the 2.5 percent predicted in May.

Until today, investors were fully pricing in a quarter-point rate increase by February, forward contracts based on the sterling overnight interbank average, or Sonia, showed. That has now shifted to May.

The jobless total fell 132,000 to 2.08 million in the second quarter, with both youth and long-term unemployment declining. Single-month figures showed the rate was 6.4 percent in June compared with 6.3 percent in May and 6.4 percent in April.

Jobless claims, a narrower measure of unemployment, fell for the 21st consecutive month in July to the lowest level since 2008. The 33,600 drop was more than the 30,000 economists forecast. In June, claims fell 39,500 instead of the 36,300 previously reported.

Bonus Effect

The number of people in work climbed 167,000 to an all-time high of 30.6 million in the second quarter, with full-time posts accounting for almost all of the increase.

While wage inflation has been held back by strong growth in April last year, as bonus payments were deferred to take advantage of a cut in the top income-tax rate, there is little evidence of underlying pay pressures. Earnings growth excluding bonuses in the second quarter slowed to 0.6 percent, the least since comparable records began in 2001.

With companies struggling to boost productivity and more than a million part-time workers unable to find full-time jobs, bargaining power over wages remains limited.

Carney also said older people seeking work to top up their incomes had helped to increase the supply of labor, potentially allowing the economy to sustain higher employment and lower unemployment without fueling inflationary pressures.

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