LONDON (Reuters) — Britain's jobless rate has fallen to its lowest level in more than seven years but pay growth was a bit slower than expected, suggesting the labour market is not hot enough to speed up a Bank of England interest rate hike.
Britain's unemployment rate fell to 5.4 per cent in the three months to August, down from 5.5 per cent in the three months to July, the Office for National Statistics said.
It was the lowest jobless rate since the second quarter of 2008, before the worst of the financial crisis, and below a median forecast of 5.5 per cent in a Reuters poll of economists.
Investors focused initially on the wage growth figures that were slightly weaker than forecast but sterling recovered from an initial fall as economists highlighted the strong job creation numbers.
The number of people in employment jumped by 140,000, pushing the employment rate to 73.6 per cent, the highest since records began in 1971. The number of unemployed people was down by 79,000, the biggest fall since the three months to January.
Dominic Bryant, an economist with BNP Paribas, said the softer wage data will make the Bank of England marginally more cautious about raising interest rates from their record low of 0.5 per cent where they have sat for more than six years.
"However, with labour market volumes continuing to improve, wage growth should still move higher through the first half of 2016 and allow the Bank to deliver the first hike in May next year," he said in an email to clients.
After lagging inflation for several years, the recovery in pay and a plunge in inflation to below zero in recent months has helped restore some spending power for many households who took a big hit in the aftermath of the crisis.
The total earnings of workers — including bonuses — rose by 3.0 per cent, edging up from the three months to July, but short of a forecast of 3.1 per cent in the Reuters poll.
In the month of August alone, total wages in the private sector, which are monitored closely by the BoE, rose by 3.5 per cent, slowing from 4.3 per cent in July.
Excluding bonuses, average weekly earnings growth slowed slightly to 2.8 per cent in the three months to August, down from 2.9 per cent in the three months to July which was the strongest growth rate in over six years.
Wage growth remains weaker than before the downturn and the Resolution Foundation, which focuses on issues faced by poorer households, said earnings adjusted for inflation would not return to their pre-crash peak much before 2020.
Sam Hill, an economist at RBC, said the Bank of England might use new economic forecasts due next month to highlight the scope for wage growth to continue before it becomes too inflationary for interest rates at their current level.
BoE Governor Mark Carney has said a decision about raising rates is likely to become clearer around the turn of the year.
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