The number of people claiming unemployment benefit fell more than many expected last month but the new coalition government cannot celebrate a steady jobs market just yet, as the jobless total rose again to hit its highest in 15 years.
The total number of people out of work rose by 53,000 to 2.51 million in the three months to March, the highest total since the end of 1994, according to the Office for National Statistics. That overshadowed a better-than-expected 27,100 fall in the claimant count in April, which compared with analysts forecasts for a 20,000 drop. The unemployment rate held at 8% in March, as expected.
“The ongoing mixed labour market data reinforces our belief that it is premature to call the all-clear on the jobs front, despite recently improved economic activity and the overall resilience of the labour market through the economy’s travails,” said Howard Archer, economist at IHS Global Insight, quoted in The Guardian.
“We suspect the labour market may well be somewhat erratic in the near term at least, with some months of unemployment gains and some of losses. In particular, significant job cuts in the public sector are looming as part of the major squeeze that has to occur on government expenditure.”
There was also worrying news for the Bank of England as pay picked up at a faster rate than expected. Average earnings grew 4% in the three months to March on a year earlier, when fewer bonuses were paid out. It was the biggest rise for almost two years and significantly above a forecast for 2.1%, in a Reuters poll. The rise in the three months to February was revised up to 2.5% from 2.3%.
Without bonuses, pay growth also accelerated but remained benign. It was up 1.9%, compared with 1.7% growth in the three months to February.
Policymakers at the Bank will be looking for any signs that above-target inflation is spilling over into pay, meaning overall prices will be harder to keep in check. The markets will get a sense of the Bank’s latest thinking on both growth and inflation when it publishes its quarterly forecasts at 10.30am.
The BoE has recently shown signs of becoming a little more jittery about the inflation outlook. The Bank left rates on hold at a record low of 0.5% this week but economists expect it will today concede that inflation will be slightly higher than previously thought this year.
Still, economists note there remains a significant amount of spare capacity in the economy so that the Bank is unlikely to rush to raise rates.
“The UK now has the lowest employment rate (72%) since September 1996. Consequently this highlights the significant spare capacity in the economy, which implies weak wage growth, low inflation and ongoing loose monetary policy, especially given the scale of fiscal consolidation facing the economy,” said James Knightley, economist at ING Financial Markets.