U.K. Unemployment Falls as Jobs Market Nears `Full Capacity'

  • Basic wage growth cools unexpectedly to 2.6% in fourth quarter
  • Uncertainty about Brexit may take a toll on U.K. hiring

U.K. unemployment declined and a measure of the number of people in work rose to a record, pushing the labor market closer to “full capacity,” according to the statistics office.

The number of jobless fell 7,000 in the fourth quarter to 1.6 million people, leaving the unemployment rate at 4.8 percent, the lowest in more than a decade. Employment increased by 37,000 to 31.8 million, and the rate rose to a record 74.6 percent, the Office for National Statistics said on Wednesday.

Despite the increase in employment, and labor shortages in some areas, that’s not being fully reflected in wages. The latest data showed basic pay growth slowed in the quarter to 2.6 percent from 2.7 percent, weaker than economists had forecast. Increases in total pay also slowed, in part reflecting the timing of bank bonuses. The pound weakened against the dollar after the data were released and was at $1.2428 as of 9:35 a.m. London time, down 0.3 percent on the day.

While employment is still rising, the pace has cooled over the past year, and uncertainty as Britain prepares to begin talks to leave the European Union is expected to take a further toll on hiring. Bank of England officials now believe there is more slack in the labor market than previously thought, which should keep a lid on wage demands. Firms told BOE agents recently they expect wage increases to slow to about 2.2 percent this year.

With inflation accelerating, that will eat into real-pay growth, which at 1.4 percent in the last three months of 2016 was the weakest since the start of 2015.

The ONS data also said that the claimant count -- a narrower measure of unemployment -- plunged 42,400 in January after a revised 20,500 drop in December. That office said changes to Universal Credit benefits is affecting its seasonal adjustments, which means the data can be volatile from month to month.

— With assistance by Harumi Ichikura, and Mark Evans

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