Photographer: Simon Dawson/Bloomberg

U.K. Jobless Rate Matches Lowest Since 1975 as Pay Slows

Updated on
  • Unemployment rate falls to 4.7% in 3-months through January
  • Basic earnings adjusted for inflation grew least since 2014

The U.K. jobless rate matched its lowest since 1975 in the three months through January but Britons are seeing their wages go nowhere.

Unemployment unexpectedly declined to 4.7 percent, matching the rate it last reached in 2005, the Office for National Statistics said on Wednesday. The number of people in work rose by 92,000 to 31.9 million, the biggest increase since last summer.

The U.K. economy has defied predictions of doom since the Brexit vote, expanding at a robust 0.7 percent at the end of 2016, but the latest data show cost pressures in the labor market remain subdued.

Follow @Brexit for all the latest news, and sign up to our daily Brexit Bulletin newsletter.

Basic wage growth slowed to 2.3 percent. With the falling pound pushing up inflation, real incomes on some estimates are set for their worst year since 2013, putting a brake on the consumer spending that drives growth.

BOE Meeting

The figures may reinforce speculation that the first increase in interest rates since 2007 remains a long way off. Bank of England officials meeting this week are expected to keep the benchmark rate at a record-low 0.25 percent, with traders pricing in less than a 25 percent chance of a hike in 2017.

Policy makers now judge the economy can sustain unemployment as low as 4.5 percent without generating inflation. Adjusted for inflation, basic earnings grew just 0.8 percent in the latest three months, the least since 2014. In January alone, there was no growth at all.

Brexit is expected to take its toll on the labor market this year, as Prime Minister Theresa May prepares to trigger two years of divorce talks with the European Union this month.

The uncertainty will see the jobless rate rise to 5.1 percent by the end of the 2017, the Office for Budget Responsibility said last week. Employment is forecast to rise by just 100,000, not enough to absorb the demands of a growing workforce. In January, the jobless rate climbed to 4.8 percent.

Read more: Hammond Accused of Breaking Tory Pledge With Budget Tax Increase

The improvement in the latest period was driven by a 136,000-increase in the number of full-time workers.

The number of people who work for themselves climbed 49,000 to a record 4.8 million. Chancellor of the Exchequer Philip Hammond backed down on a proposed 2 billion-pound tax increase on the self-employed on Wednesday after a storm of criticism.

The move, announced in the Budget last week, broke an election pledge and many in the ruling Conservative party feared a backlash in Tory heartlands. Self-employed people now account for a record 15 percent of all workers compared with 13 percent before the 2008 financial crisis.