More reason to cheer as unemployment rate falls?

Inflation yesterday, unemployment today... Though closer inspection suggests the fall in the jobless count may also be short-lived.

by James Taylor
Last Updated: 19 Aug 2013
UK unemployment fell by 17,000 to 2.48m in the three months to the end of February, the ONS said today - much to the surprise of economists, who'd been expecting a slight fall at best. But while this is obviously a positive sign (and the Government will be keen to portray it as such, particularly after yesterday's relatively good news on inflation), it seems unlikely to mark the start of an upward trend. The private sector has clearly been doing its bit to pick up the slack on the jobs front. But since public sector redundancies are bound to accelerate in the coming months, the overall unemployment rate could be rising again by the summer - with women particularly hard hit.

Let's start, as is our wont, with the good news: the fall in the overall unemployment rate, from 8% to 7.8%, came as a pleasant surprise to the City. Encouragingly, the number of people in full-time work jumped by 140,000, the biggest rise in 4 years, while the number of economically inactive people dropped by 71,000 to 9.3m. And while youth unemployment is still above 20% (and only just short of 1m), it's actually down slightly on the three months to January. 'Another step in the right direction', was the verdict of Employment Minister Chris Grayling.

However - although public sector employment has already started to shrink (by 45,000 to 6.2m over the period), the really big cuts are likely to kick in from the start of this month, following the end of the 90-day consultation launched in January. That means the next few months of ONS data may well see much bigger falls – and with growth looking lacklustre at best, it's hard to see the private sector creating enough new jobs to compensate. So the overall jobless rate may go straight back up again (as the slight rise in the claimant count for March possibly suggests).

And there's another unhappy corollary. Today's data shows that the number of unemployed women increased by 14,000 to just over a million, while the female claimant count also rose for the ninth month in a row (even as the male claimant count fell for the 14th month in a row). Since women are likely to be disproportionately affected by the public sector cuts, that's not surprising - and it may get worse before it gets better.

The other notable stat today was that average earnings rose 2% in the year to February, 0.3% down on the equivalent figure last month. That's good news for the Bank of England, because it suggests a degree of pay restraint that should keep a lid on inflation. But if wage growth remains a full 2% below the current rate of inflation, we're all going to feel a bit poorer. And if we spend less as a result, that doesn't bode well for our recovery hopes.

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