UK unemployment inches lower, wage growth accelerates

UK wage growth climbed as the unemployment rate was supported by a rise in inactivity, according to official data released on Wednesday, and the more timely claimant count measure dropped unexpectedly.

Unemployment fell by 52,000 to 1.6m in the three months to November, the Office for National Statistics said, though the headline rate remained at 4.8% as expected.

Employment also dropped slightly, falling 9,000 in the three months to November but the unemployment number climbed due to an 85,000 increase in inactivity levels.

The number of people who have stopped looking for jobs and become economically inactive rose by its fastest rate for more than two years

Basic wage growth including bonuses rose to 2.8% from 2.5% in October, exceeding the consensus forecast of 2.6% and reaching a 14-month high. Excluding bonuses it accelerated to 2.7%, ahead of the consensus estimate of 2.6%.

Economist Sam Tombs at Pantheon Macroeconomics said the combination of the pickup in the headline rate of wage growth and 14-month high plus the sharp rise in inactivity "will fan fears that the economy is running in to supply side constraints, requiring the MPC to hike interest rates soon".

But he pointed out that the rise in wage growth partly reflected a 5% year-over-year rise in bonuses, which are extremely volatile, and said he doubted that wage growth will continue to rise and would have to sustainably exceed 3% for the MPC to judge that they threaten to prevent inflation from returning to its 2% target after its coming surge.

Howard Archer at IHS Markit added: "While the labour market still looks pretty decent overall helped by the economy’s ongoing resilience, the suspicion is that employers are starting to become a bit more cautious as they enter into a challenging looking 2017".

He said that the labour market has been helped by the economy’s resilience so far since June’s Brexit vote, "but 2017 is likely to prove increasingly difficult for the economy and the jobs market" as consumer purchasing power is expected to deteriorate and business uncertainties increase as Brexit caution takes a toll on growth and employment.

"Consequently, we see the unemployment rate starting to trend up before too long and suspect that it could reach 5.4% by the end of 2017. We see it rising further to 5.9% by the end of 2018," Archer said.

On the recruitment frontline the picture is mixed, said Mariano Mamertino, at online recruiter Indeed, feeling the recent falls in unemployment were "hollow victories" because they are being driven not by job creation but by more people leaving the workforce.

“For those in work, of greater concern is the steady erosion of their pay packets. Consumer prices rose by 1.6% in 2016, and inflation may soon match average wage rises - leading many people’s incomes to stagnate in real terms," he said.

Indeed's sector data from December found hiring activity rose in barely half of the 13 sectors and that hiring levels in most were down over the year.

“Looking ahead, many recruiters will be worrying most about their ability to hire EU citizens," Mamertino said. "While the Prime Minister’s speech yesterday made clear the government has chosen immigration control over continued membership of the single market, there were conciliatory noises for British firms who rely on talent from abroad.”