Falling UK Unemployment & Rising Wage Growth Signals Labor Market Strength

The surprise decline in the UK unemployment rate and strong growth in average earnings in the three months to April reflect the tightness of the labor market, data from the Office for National Statistics revealed Tuesday.

The jobless rate fell to 3.8 percent in the three months to April from 3.9 percent in the preceding period, while it was forecast to rise to 4.0 percent.

Average earnings including bonuses increased 6.5 percent on a yearly basis, which was much faster than the expected 6.1 percent increase.

Excluding bonus, earnings posted a 7.2 percent annual increase compared to the forecast of 6.9 percent. The ONS said this was the largest growth rate seen outside of the coronavirus pandemic.

In the three months to April, the employment rate rose to 76.0 percent. Employment increased to a record high with increases in both the number of employees as well as self-employed workers.

In May, payroll employment registered a monthly increase of 23,000 to 30.0 million.

The number of vacancies fell 79,000 on the quarter to 1.05 million in March to May. Vacancies decreased for the eleventh consecutive period as economic pressures held back recruitment.

Data showed that nearly 257,000 working days were lost because of labor disputes in April.

In May, the claimant count held steady at 3.9 percent. The number of jobless claims decreased by 13,600.

“While it is positive to see unemployment remaining low, the labor market continues to be incredibly tight, bringing it with it additional problems and costs for employers,” British Chambers of Commerce Head of People Policy Jane Gratton said.

ING economist James Smith said strong wage growth points to a rate hike in June and potentially August. This is also a reminder that pay pressures are likely to ease only gradually.

The economist said data does not necessarily suggest that the Bank of England has to raise rates as aggressively as markets expect but it imply that rate reductions are some way off.

The BoE has raised its benchmark rate over the last twelve consecutive sessions to address inflationary pressure. At 4.50 percent, the bank rate remained the highest since 2008. The next monetary policy announcement is due on June 22.

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