Unemployment falls to 6% and wages finally outstrip consumer prices index

12th November 2014

img

UK unemployment fell by 115,000 between July and September to 1.96 million or around 6%, according to the the Office for National Statistics.

This is the 18th consecutive fall in the total, the ONS with average earnings growth beating inflation for the first time in five years. Wages excluding bonuses rose by 1.3% in the year to September, ahead of the 1.2% Consumer Prices Index.

The number of people claiming Jobseeker’s Allowance was 931,700 in October, 20,400 down on September, and the 24th consecutive monthly fall. The ONS said employment rose by 112,000 in the latest quarter to 30.7 million which it says is the highest since records began in 1971. The number of self-employed fell by 88,000.

Employment Minister Esther McVey said: “Record numbers of people in work means more people with the security of a regular wage who are better able to support themselves and their families.

“With the vast majority of the rise in employment over the last year being full-time, it’s clear that thanks to the government’s long-term economic plan, we are helping businesses to create the jobs that people need.”

However some experts warned that the fact wages are finally outstripping one inflation measure is as much to do with low inflation rather than significantly rising wages.

IHS Global Insight’s chief UK economist, Howard Archer, said: “This is still really more to do with low inflation than markedly improving earnings. However, earnings growth did take a much-needed decent step in the right direction in September.”

Richard Troue, head of investment analysis, Hargreaves Lansdown says: “A lack of wage growth has been the missing link from the otherwise robust economic recovery Britain has experienced. However, the recent trend has been for wages to show very modest, below inflation growth and one month in isolation is not enough declare a turnaround. The champagne should remain on ice for now.

“Nevertheless, falling unemployment and rising wages are good news, and with the oil price sliding below $80 per barrel inflationary pressures are easing. Energy and food prices have been falling recently, so even modest wage growth could ease the pressure on consumers and households further, putting more pounds in their pocket in the run up to Christmas.”

“Indeed, the Bank of England now sees inflation “markedly” below the levels forecast in August over the coming 12 months, at around 1%, while it expects the economy to grow 2.9% next year, weaker than the 3.1% expansion forecast in August. A lack of inflationary pressure coupled with slowing global and domestic economic growth means there continues to be little pressure on the Bank of England to raise interest rates from 0.5%. We don’t see rates rising until the second half of 2015 at the earliest and when they ultimately do the Bank’s guidance continues to point to gradual increases and interest rates below historical average levels for some time to come.”

Helal Miah, investment research analyst at The Share Centre, said: “While there is still slack in the labour market, these figures potentially point to good news for those in work as they may finally begin to see a meaningful rise in salaries. In the short to medium term we expect this dynamic to improve further as we believe the rate of inflation will fall under greater pressure in the coming months. This is especially the case as oil prices have taken a tumble since the summer and it has been indicated that the rate of wage growth is set to improve further. Supporting this, in the inflation report also released this morning the Bank of England highlighted they expect inflation in the final quarter of this year to hit 1.2%.

“There is still plenty of slack in the UK economy and GDP growth expectations for 2015 have been downgraded to 2.9% from 3.1%. The markets had been pricing in a rate rise around the middle of 2015, so this dramatic fall in inflation expectations and spillover effects of the weak Eurozone has pushed the expectation of the first rise in interest rate into Q3 2015. As a result any rise in sterling following this morning’s jobs data announcement has been offset by disappointment of the delayed interest rate rise.”

Andy Scott, associate director at HiFX, said: “We’re now seeing average earnings heading back up after hitting a record low in August. Rising earnings are a good thing as far as the economy is concerned, easing downwards pressure on households’ disposable income, leading to increases in consumer spending. However, earnings still have to rise further before they match inflation, and that’s a core focus for the Bank of England. Today’s quarterly inflation report revealed that the Bank expects the dip in inflation to continue, maintaining their positive GDP growth outlook – however, with only a 0.1% drop in its forecast for next year to 2.9%.

“As inflation slows and global growth risks increase, there will be less pressure to raise rates even if the economy remains on its forecasted growth trajectory. Although the overall tone of the report was expected, sterling fell from its intraday highs against the dollar, and the euro by around 0.5% to 1.5870 and 1.2735 respectively. The upside of potential higher interest rates for the pound has been diminished by the declining trend in inflation. However, the economy still looks in good shape, especially compared to the eurozone. We maintain a favourable bias for GBP/EUR towards 1.3500 into next year and expect GBP/USD to recovery marginally back over the 1.6000 level.”

 

Leave a Reply

Your email address will not be published. Required fields are marked *