Unemployment falls to 6% but wages are still lagging inflation

Wage growth is rubbish yet again - an pre-election interest rate rise is looking pretty far away right now.

by Rachel Savage
Last Updated: 29 Oct 2014

Unemployment has fallen again, with the rate down to the nice round number of 6% in June-August, according to the Office for National Statistics, the lowest since late 2008.
The number of people out of work dropped 538,000 over the year to 1.97 million - the largest annual fall on record and the first time it’s dipped below 2 million since 2008.

Source: ONS

It’s a pretty hefty tumble from a rate of 7.7% this time last year, back when newbie Bank of England governor Mark Carney was trying out this whole forward guidance thing (they were definitely going to think about raising interest rates when unemployment fell below 7%).

But wage growth is still stagnating away, with average weekly earnings up 0.7% year-on-year including bonuses and 0.9% without them. It has ticked up from 0.6% and 0.7% last month, but that’s still well below inflation - even after it fell from 1.5% in August to 1.2% in September.

Source: ONS

The rise of 0.9% did beat economists' expectations of a 0.8% rise. Moreover, financial information company Markit found income from employment rose at the fastest rate in the survey's 69-month history in October.

Nonetheless, the stubborn continued fall in real wages is making a pre-election interest rate rise look further away than ever at the moment - if employers aren’t inflating pay packets, then the Bank won’t want to put them off even more.

The number of people in work is now a record 30.76 million, and the employment rate, at 73%, is within touching distance of the all-time high of 73.2%, set in 2005. That looks good, but also raises the question of much further it can realistically go. And the growth in employment could well be slowing anyway - the rise of 46,000 in June-August is the lowest quarterly increase since May 2013.

Source: ONS

So a mixed bag of data, as these things go. One thing is clear though - wage growth is now economic stat numero uno for everyone from workers to the Coalition and Carney and his crew.

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