July 14, 2010 / 8:36 AM / 10 years ago

Jobless claims fall and wage pressures ease

LONDON (Reuters) - The number of people claiming unemployment benefit in Britain fell to its lowest in more than a year in June, while the number of those in work jumped at its fastest in four years, suggesting recovery remains on track.

A man is seen working on an engine at the Nissan car plant in Sunderland, northern England, June 24, 2010. REUTERS/Nigel Roddis

But figures from the Office for National Statistics also showed a marked slowdown in earnings growth, which should reassure the Bank of England that high inflation is not propelling pay demands and persuade it to keep policy loose.

Wednesday’s figures showed the number of people claiming jobless benefit fell by a bigger-than-expected 20,800 in June, its fifth consecutive monthly fall and pushing the claimant count rate down to a 15-month low of 4.5 percent.

The number of people without a job on the wider ILO measure fell by 34,000 to 2.468 million in the three months to May, taking the jobless rate down to 7.8 percent, a 4-month low.

The pound rose against the dollar and euro after the figures, which suggested Britain’s labour market is continuing to recover as the economy emerges from recession.

But analysts warned that the improvement in the labour market may not last, as the outlook for growth is uncertain and as government spending cuts are likely to result in more than half a million public sector job cuts over the next five years.

“The UK labour market has perked up a bit, but we still doubt that private sector hiring will pick up strongly enough to offset the severe public sector job cuts,” said Vicky Redwood of Capital Economics, who thinks there will be 750,000 public sector redundancies by 2015/16.

UNDERLYING WEAKNESS

Despite a surge in the number of people in work, analysts cautioned that a sharp slowdown in pay growth could be a symptom of underlying weakness in the jobs market, providing a further reason for the Bank to keep interest rates lower for longer.

Average weekly earnings growth eased to 2.7 percent in the three months to May from 4.1 percent in April. And excluding bonuses, earnings growth slowed to 1.8 percent from 1.9 percent.

“It seems unlikely that wage pressures will pose an inflationary threat anytime soon, which supports the case for the Bank of England to keep interest rates down at 0.5 percent for many months to come,” said Howard Archer, economist at IHS Global Insight.

The number of people in employment rose by 160,000 in the three months to May, the biggest rise since August 2006, but the increase was mainly due to a record 148,000 rise in the number of part-time workers.

The vast majority of those took part-time jobs because they did not want full-time work, and most of these were women.

So while the figures could indicate the labour market is tentatively perking up, it may also be a sign that economic hardship is forcing more people back to the workplace.

“We are cautious about whether a steady pace of improvement can be maintained into 2011,” said David Tinsley, economist at NAB Group.

“The weight of a standstill in public sector hiring and redundancies will mean that significant reductions in the rate of unemployment will be increasingly difficult before a deeper private sector recovery can get going.”

Editing by Toby Chopra

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