UK Unemployment Falls at Fastest Pace Since 2000

Unemployment fell by 88,000 to 2.43 million in the first three months to April, according to the Office for National Statistics (ONS).

The unemployment rate fell to 7.7%, down from 8% three months previously. This is reportedly the largest drop since the summer of 2000.

However, the number of people claiming Job Seeker’s Allowance in May rose by 19,600 to 1.49 million. This rise was the biggest since 2009 and larger than expected.

The official unemployment figure – which is based on a survey – has differed from the number of recorded claimants for many months.

Alan Clarke, of Scotia Capital, said the claimant count was an indication that the labour market could deteriorate. "With GDP growth unlikely to stray very far above zero over the next 6 months, we should brace for further increases in unemployment," he said.

In addition, wage growth increased at an annual rate of 1.8%, which means that incomes are rising at less than half the rate of inflation. This follows reports on Tuesday that inflation remained steady at 4.5% in May and could rise further, suggesting that the purchasing power of average wages is weakening.

Hetal Mehta, of Daiwa Securities, said that this means that it is unlikely that the Bank of England will raise interest rates in the near future. “Wage growth remains well below levels that the Bank would consider a threat to inflation. This combined with inflation remaining steady and weak retail indicators reinforce our view that the Bank of England will stay in wait-and-see-mode with regard to interest rates until next year," she said.

Interest rates are currently at a record low of 0.5%.

By Sarah Hill

[Image courtesy of GeoBlogs]