17th June 2015
Unemployment has continued its decline, while wage growth has come close to the highest rate in four years, according to official figures.
The Office for National Statistics revealed that the number of people out of work between February and April fell by 43,000 to 1.81 million.
The jobless rate remained stable at 5.5%, the lowest level since August 2008.
Wage increases grew at the fastest rate since August 2011, rising 2.7%
There are now a total of 31.05 million people in work, an increase of 114,000 on the previous three months.
The employment rate for women hit a record high of 68.6%.
‘Bank of England has a close eye on wages’
Ben Brettell, senior economist at Hargreaves Lansdown, says: “Hot on the heels of yesterday’s news that inflation turned positive in May comes encouraging news from the UK labour market..
“This is the clearest indication yet that living standards are undergoing a sustained increase, following years of falling real wages in the aftermath of the financial crisis.
“The Bank of England is watching the labour market closely for signs that ‘slack’ in the economy is being taken up before raising interest rates. Wage growth is thought to be a particularly important indicator of the degree of slack – subdued wage growth in the recovery thus far has signposted that the economy could grow at a faster rate without pushing up inflation. If the trend we are seeing in wages continues, or accelerates further, this could support the case for higher interest rates sooner rather than later.
“Also released today were the minutes from the Bank of England’s latest policy meeting minutes. All nine committee members once again voted to leave interest rates on hold for now. The minutes note the improving trends in the labour market, but also questioned the extent of any further wage acceleration, as near zero inflation could “dampen wage settlements and prolong the period of historically weak pay growth”. Further risks to the economy were highlighted, including interest rate hikes by central banks elsewhere in the world and the continuing crisis in Greece.
“Overall the likely timing of the first interest rate rise remains uncertain, with the first half of next year looking the most likely option.”
Good news for spenders and savers
Nick Dixon, investment director at Aegon UK, says: “The uptick in wages will be warmly welcomed by consumers after the trudge of slow growth. As well as the immediate relief of more money in pockets, it also spells good news for long term savings. People pay a proportion of their salary into their savings, so if pay-packets increase, so do their monthly contributions. While many may think this is just a small step in improving short-term savings, it’s another leap in securing people’s future financial wellbeing.”
‘Tech companies are scaling up’
David Morel, managing director of Tiger Recruitment, says: “The jobs market has been improving steadily for some time now, but since the General Election there has been a significant uplift in activity. With the Conservative majority, there will be more of the same on the economic front and this has meant firms have started hiring with even greater commitment.
“The jobs market is thriving across all sectors and is very well balanced. It’s particularly strong in the tech community, where many firms have really started to scale up and mature. First and second jobbers are also now finding it far easier to find work.
“Companies are now more confident about the future and are increasingly investing in people with no, or less experience. This is proof-positive that employer confidence is strong.
“The UK jobs market is currently accommodating all age groups and experience levels, and people are commanding larger pay-packets than they were even a year ago.
“Potential threats to the UK economy remain, specifically the possibility of Greece leaving the single currency and the impact of rate rises when they do eventually come. But for the time being, the jobs market is robust.”
Andy Scott, associate director of advisory services at foreign currency specialists, HiFX, says: “Sterling jumped higher on Wednesday following stronger than expected wage growth for April that could prompt the Bank of England to consider raising rates a bit sooner than the first half of 2016.
“Whilst inflation is basically non-existent in consumer prices, the increasing pace of pay rises risks stoking inflation, as the spending power of households increases and firms potentially look to cash in by raising prices. However, rising wages are a very good sign for the overall economy as it shows the situation is starting to normalise and employees feel more comfortable about asking for pay increases after 5 years of wages falling in real terms.
“Sterling rose by around 0.5%, to a 1-month high above 1.57 against the dollar, and by a similar amount against the euro to a 3-week high above 1.39.”