Britain’s recovery still has a long way to go David Cameron acknowledged on Wednesday, even as a strong set of jobs data reinforced signs that the economy is improving.
The unemployment rate dipped from 7.8 to 7.7 per cent in the three months to July, lower than the market expected, boosting hopes that recent signs of faster recovery are extending to the labour market, which has been sluggish this year.
The fall in the rate to an eight-month low, coupled with a larger than expected drop in the number of people claiming unemployment benefits, sent sterling sharply higher.
The pound rose 0.4 per cent against a basket of currencies, reflecting the market’s expectation that the Bank of England will be forced to raise interest rates earlier than implied by the “forward guidance” espoused by Mark Carney, the governor.
Economists had expected the jobless rate to remain unchanged. It has become a more important indicator since the BoE adopted “forward guidance” last month, saying it would not raise interest rates until unemployment fell to 7 per cent.
The bank expects that to happen in mid-2016, but the market believes interest rates are likely to start rising by early 2015.
In a positive set of data, the jobless total fell by 24,000 to 2.49m in the quarter.
The number of people claiming jobseekers’ allowance – the main unemployment benefit – fell by 32,600 in August to 1.4m, after a revised fall of 36,300 the previous month. The two-month drop was the largest since 1997.
However, the unemployment rate among 16 to 24-year-olds rose 0.5 points to 21 per cent in the quarter to July. The total was up 9,000 at 960,000.
Incomes continued to be squeezed, with average earnings up 1.1 per cent in the quarter compared with a year ago, less than half the inflation rate
Employment was up 80,000 in the quarter to 29.84m, with all the net job growth coming in full-time employment for employees on permanent contracts – the numbers working part-time, on temporary contracts or self-employed all fell.
“This is by far the strongest overall set of official UK labour market figures this year and indicates that the summer surge in economic growth was accompanied by a jobs surge,” said John Philpott of the Jobs Economist consultancy.
But the number of people working part-time because they could not get a full-time job rose to a record 1.45m.
Incomes continued to be squeezed, with average earnings up 1.1 per cent in the quarter compared with a year ago, compared with inflation at 2.8 per cent. Excluding bonuses, the earnings rise was 1 per cent.
In the Commons, the prime minister said: “Of course it’s welcome when unemployment falls but we have got a long way to go. As the chancellor said, ‘We are turning the corner’. But we have got to build this recovery.”
Unemployment fell in England, Wales and Northern Ireland but rose by 10,000 in Scotland. The highest rate was in northeast England, up 0.3 points at 10.4 per cent, and the lowest in southeast England, down 0.7 points at 5.8 per cent.
Employment in the public sector was down 34,000 in the quarter at 5.67m and in the private sector it was up 114,000 at 24.17m.
Martin Beck, an economist at Capital Economics, cautioned that it would take a long time for the jobless rate to fall to 7 per cent, because employers would seek to get more productivity out of existing staff rather than taking on workers..
“Despite the drop in the jobless rate, bank rate at 0.5 per cent still remains in prospect for several years to come,” he said.