LONDON (Reuters) - Britain’s strong labor market recovery is showing signs of cooling, even as the unemployment rate once again fell more than expected in the three months to August.
Job creation was its weakest since the spring of last year and there was a sharp slowdown in the pace at which the number of people claiming unemployment benefit is falling.
Workers’ earnings again failed to keep pace with inflation, Wednesday’s Office for National Statistics data showed, keeping falling living standards on Britain’s political agenda ahead of next May’s national elections.
The strength of Britain’s economic recovery since the middle of 2013 and its success in bringing down unemployment wrongfooted investors and the Bank of England last year.
The unemployment rate fell again to 6.0 percent between June and August, the lowest level since the three months to October 2008, the ONS said.
That was below a forecast of 6.1 percent in a Reuters poll and down from 6.2 percent a month earlier.
The BoE is watching for signs of a pickup in labor costs as it considers when to start raising interest rates. Wednesday’s figures are unlikely to change the minds of the majority of its policymakers who have voted to keep rates unchanged, especially after a sharp slowing of British inflation in recent months.
Financial markets are now predicting a first rate rise by the BoE in mid-2015 or even later.
Some economists said there were signs that earnings growth would continue to pick up gradually.
Samuel Tombs at Capital Economics said the slower pace of job creation would improve Britain’s weak productivity, helping companies to pay their workers more.
“Indeed, a pick-up in real earnings next year should enable the economic recovery to broadly maintain its current pace despite the euro zone’s stagnation and onset of rising interest rates,” Tombs said in an email to clients.
Sterling rose briefly against the dollar when the ONS data was published as investors reacted to the lower-than-expected unemployment rate. But the pound gave up those gains quickly as economists parsed the details.
The number of people in employment rose by 46,000 between June and August, its slowest pace since the March-May period of 2013 and much lower than growth of more than 200,000 in several three-month periods over the past year.
The monthly fall in the number of people claiming unemployment benefit was the smallest since April last year, at 18,600 in September. Economists had expected a fall of 35,000. August’s decline was slightly less than previously reported too.
Many British employers have been able to keep a lid on pay as more people seek work, and average weekly earnings including bonuses rose by 0.7 percent in the three months to August, just a touch up from 0.6 percent in the three months to July.
Pay growth has lagged inflation for most of the period since the financial crisis in 2008, putting the issue of stretched living standards at the center of the opposition Labour party’s message to voters ahead of next May’s national election.
Excluding bonuses, pay rose by a slightly more-than-expected 0.9 percent, picking up from 0.8 percent in the May-July period.
Economists taking part in a Reuters poll had expected total earnings to rise 0.7 percent and by 0.8 percent excluding bonuses.
“Earnings growth has now risen for two consecutive months,” said Dominic Bryant, an economist at BNP Paribas. “It is too early to call this a trend, but at the margin it is positive.”
In the month of August alone, total pay edged up by 0.8 percent while regular pay, excluding bonuses, rose 1.2 percent, its biggest increase since February.
Data released on Tuesday showed annual inflation in September fell sharply to 1.2 percent, some relief for consumers but still way above growth in earnings for most workers.
Writing by William Schomberg, editing by John Stonestreet