UK unemployment rate jumps, wage growth accelerates

Unemployment in the UK rose by more than expected in May even as wage growth picked up further, albeit by less than economists had forecast.

The unemployment rate for the three months to May ticked higher by one tenth of a percentage point to 5.6%, according to the Office for National Statistics.

The figures came close on the heels of what some analysts interpreted as somewhat more hawkish remarks from the Governor of the Bank of England, on the previous day, and a soft patch in GDP growth in the first quarter.

The data might also be a reflection of supply constraints hitting employment growth, as some recent survey results had been pointing to, Dominic Bryant at BNP Paribas said in a research note e-mailed to clients.

At 30.98m, there were 67,000 fewer people in employment in the latest reference period. In parallel, the number of unemployed increased by 15,000 to hit 1.85m.

The consensus estimate had been for the unemployment rate to remain at 5.5%, the same as in April.

The number of long-term unemployed – defined as those who have been out of a job for between 12 and 24 months - rose by 5,000 to reach 169,000 in the three months to May.

Growth in average weekly earnings jumped to a 3.2% pace after a reading of 2.7% in the month before (consensus: 3.3%) - its fastest since 2010.

Excluding bonuses wages rose by 2.8% year-on-year, slightly below the 2.8% anticipated by economists.

Wage growth not yet quite what the MPC wants

The number of vacancies slipped by 5,000 to reach 726,000 in the three months to June and remained above pre-crisis levels, BNP Paribas pointed out.

"The Bank will be watching wage developments closely. Governor Carney noted yesterday that they had been a little stronger than expected of late, but the Bank’s forecast is for further strengthening during the course of the year.

“Most on the MPC are likely to want to see a further sustained pick up in wage growth before opting to tighten policy (the two hawks are likely to vote for a hike in August)," Bryant added.

"There is no need for the MPC to panic about wage growth yet, especially given that the softer labour market activity could act as a brake on wages," Vicky Redwood, chief UK economist at Capital Economics told clients.

As of 09:58 the yield on the 10-year benchmark Gilt was edging higher by one basis point to 2.12%.

In an immediate reaction cable hit an intra-day low of 1.5603 only to afterwards recover back to the 1.5638 mark.