Unemployment in Britain fell to a near 7½-year low in the three months to September, figures out today showed. The ILO measure of unemployment fell to 5.3% in the three months to September from 5.4% in the previous three months. This was the lowest since May 2008 and below estimates that it would stay unchanged. However, the tightening labor market has yet to cause a major squeeze on pay as earnings growth unexpectedly slowed in September.
Average earnings was the biggest surprise of the day as it grew by less than expected. In the three months to September, average weekly earnings, including bonuses, rose by 3.0% year-on-year, which was unchanged from August and below consensus estimates of 3.2%. Excluding bonuses, the rate fell to 2.5% in September from 2.8% in the prior three months and was below forecasts of 2.7%.
Pay growth in the UK has remained weak since the financial crisis despite a strong recovery in employment. Much of the weakness has been attributed to lower productivity and on higher net migration.
The claimant count measure of unemployment was a little worse than expected and rose by 3,300 instead of the 1,500 forecast. The claimant count rate stayed unchanged at 2.3% in October. The total employment rate increased to 73.7% – the highest since comparable records began in 1971 and up 0.1% from the previous three months.
Today’s figures are largely consistent with the Bank of England’s latest quarterly outlook which had forecast that inflationary pressures would remain subdued even if interest rates do not rise until at least 2017. The Bank’s updated outlook caused a sharp slide in the value of the pound at the beginning of the month as most economists had forecast that interest rates would start to go up in the first half of 2016.
BoE Governor Mark Carney had signalled in the summer that a decision to raise interest rates would come into sharper relief around the turn of the year. However, the weakness in emerging markets and ongoing downside pressure on commodity prices has led to downward revisions to UK growth and inflation.
This is in contrast to the United States where the Federal Reserve appeared less concerned about the downside risks from global developments on the US economy at its October FOMC meeting. The Fed is now widely expected to raise rates in December but the UK’s wider exposure to emerging markets has led to a more cautious approach by the Bank of England. Most analysts now expect the BoE to raise rates in late 2016/early 2017.
The pound fell immediately after the data was released but bounced back by mid-European session. Sterling had started Wednesday session higher as dollar bulls took a break and was up at 1.5184 dollars before the data. It dropped to 1.5133 dollars post the weak earnings numbers but quickly recovered to 1.5162 dollars. The euro rose to 0.7104 pounds before sliding back down to 0.7082.
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