16th September 2015
Employment rose by 42,000 in the three months to July to reach 31.095 million and wages grew at their fastest pace for six years.
Employment returned to close to record high of 31,098 million seen in the three months to March, official figures show.
The Office for National Statistics data also reveals that, although unemployment was up by 10,000 in the three months to July to 1.823 million, this was below the 25,000 increase in the three months to June when there were 1.852 million unemployed.
As a result, the unemployment rate dipped back down to 5.5% in the three months to July from 5.6% in the three months to June.
However, claimant count unemployment ticked up by 1,200 in August from July’s record low of 71,900.
Howard Archer, chief UK and European economist at IHS Global Insight, says that: “Even so, the labour market has clearly lost momentum compared to earlier this year.
“A positive interpretation of this is that UK productivity is now seeing genuine improvement – with earnings growth stronger, UK companies may well now be really stepping up their efforts to lift productivity by getting more out of their existing workers.
“It is also likely that a number of other factors have recently had some dampening effect on the labour market.
“UK growth has been more erratic so far in 2015 compared to the solid gains seen through 2014, while increased business caution over employment may well have been encouraged by uncertainty first of all relating to May’s general election then by the heightened Greek crisis and now by the possibility that global growth could be held back by a sharp slowdown in China and emerging markets. It is also evident that some companies are increasingly struggling to get the qualified/skilled workers that they need.”
Archer expects the number of jobless to trend gradually down over the coming months, taking the unemployment rate down to 5.3% by the end of 2015, and to 5% by the end of 2016.
He adds: “While we expect growth will hold up relatively well over the rest of 2015 and during 2016, we suspect that the improvement in the labour market will be relatively gradual from now on as companies look to lift productivity.
“There is also survey evidence and reports which indicate that some companies are scaling back their employment plans due to the introduction of the national living wage (set at £7.20 for workers aged over 25) from April 2016.”
Earnings growth rose by 3.7% in July after an increase of 2.3% in June.
“While this was significantly influenced by higher bonus payments, it is notable that underlying earnings growth picked up to 3.2% in July from 2.8% in June, taking it to its highest level since November 2008,” says Archer.
He adds: ìThe latest inflation, earnings and economic activity reinforces our belief that it is a very close call as to whether the Bank of England lifts interest rates from 0.50% to 0.75% around February, or holds fire until the second quarter.
“Much will clearly depend on how well UK growth stands up over the coming months amid any hit to global growth from a Chinese slowdown and financial market volatility, how much the current weakness in oil and commodity markets weighs down on UK inflation, and how earnings growth and productivity develop.
“Sterling’s performance will also obviously be an important factor, as the stronger it is the more the potential dampening impact on UK growth and inflation.”
Andy Scott, economist at HiFX, says: “Sterling rallied against both the dollar and the euro Wednesday following stronger than expected figures on UK wage growth.
“Average earnings rose at their fastest pace in six years in July, showing that the improving labour market is feeding increased wage demands – a sign that employers are willing to pay more to keep existing, or hire new workers.
“The news of individuals seeing strong pay growth in real terms should continue to support domestic demand and economic growth, all the more important when the global growth outlook is weakening.
“This also tallies with consumer confidence which has recently been at a 15-year high, as people’s improving financial position boosts sentiment.
“Sterling rose more than half a percentage point against the dollar to 1.54, and by the same against the euro to 1.37 as the news supports those at the Bank of England who are signalling rates will need to rise ‘sooner rather than later.’
“If the economy continues to grow at a reasonable rate, and wages continue to grow at 3% or more, we could well see the BoE regain its credibility and follow through with a rate hike early next year. If recent history has taught us something though, when it comes to Carney signalling a rate hike, we know not to hold our breath!”