UK jobless falls sharply but wages grab limelight

LONDON - The number of Britons claiming jobless benefit fell sharply last month, but it was no surprise to markets after Prime Minister Tony Blair said on Tuesday he expected a “welcome” drop in unemployment.

By (Reuters)

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Published: Wed 13 Sep 2006, 6:44 PM

Last updated: Sat 4 Apr 2015, 4:21 PM

Instead, investors homed in on news average earnings growth picked up to a weaker-than-expected 4.4 percent in the three months to July, leaving it just below the Bank of England’s 4.5 percent tolerance level.

The pound fell and UK interest rate futures ticked higher as investors bet policymakers would be reassured that rising inflation is not yet feeding into workers’ wages.

Still, analysts said the figures were unlikely to deter the central bank from raising interest rates to 5.0 percent before the end of the year, particularly after data this week showed inflation rising further above target.

“In total it points to a continued soft labour market, but it is not sufficient to dissuade the BoE from moving again and we factor in another rate hike in November,” said David Page, economist at Investec.

Indeed, Wednesday’s data showed earnings growth was its highest in more than a year and followed a report by the Recruitment and Employment Confederation that showed wage growth for permanent staff at its fastest in two years.

And with higher utility bills and university tuition fees expected to fuel inflation in the coming months, rate-setters may be keen to make a precautionary move.

“The MPC might still want to hike interest rates pre-emptively once more this year, as a warning to wage-setters ahead of the January pay round,” said Vicky Redwood of Capital Economics.

Blair gaffe

Wednesday’s data showed the number of people claiming jobless benefits fell by 3,900 in August, the biggest decline since January 2005.

Blair -- who like other senior ministers will have been privy to the data beforehand -- was keen to trumpet the good news to the Trades Union Congress on Tuesday, landing him in hot water with the Office for National Statistics.

The ONS said it was looking into the circumstances of Blair’s comments and had been in contact with the Cabinet Secretary, the government’s top civil servant.

“The claimant count number didn’t surprise after the prime minister’s comments yesterday, but overall I think the slight moderation in earnings data will comfort the Monetary Policy Committee,” said Amit Kara, economist at UBS.

While the claimant count fell, the ILO jobless rate, an internationally-comparable measure, held steady at a six-year high of 5.5 percent.

This is also the BoE’s favoured jobless measure and could provide reassurance that a softening labour market will help keep a lid on wage demands going forward.

Separate data showing a fall in the number of public sector workers should also alleviate concerns about wage pressure in this sector.

Public sector employment fell by 9,000 in the 12 months to the second quarter, with the number of workers in central government down by 2,000 and the number of civil servants down by 12,000 in the period.

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