September 17, 2014 / 8:42 AM / 5 years ago

UK earnings edge up, unemployment falls more than expected

LONDON (Reuters) - The earnings of British workers picked up in the three months to July but still lagged far behind inflation, even as unemployment fell more than expected, official data showed.

Commuters walk across London Bridge to the City of London August 7, 2013. REUTERS/Luke MacGregor

The data from the Office for National Statistics also showed the slowest growth in employment in more than a year, suggesting some of the strength in the labour market might be easing.

The Bank of England has put pay at the centre of its thinking on when to raise interest rates and Wednesday’s data helped explain why it halved its forecasts for earnings growth in 2014 to 1.25 percent.

Britain’s jobless rate fell to 6.2 percent between May and July, the lowest level since the September-November period of 2008, as Britain’s economic recovery remained in high gear.

Economists in a Reuters poll had expected the rate to fall to 6.3 percent.

Average weekly earnings, including bonuses, rose by a mere 0.6 percent in year-on-year terms although that represented a recovery from a fall of 0.1 percent in the three months to June, the ONS said.

The extreme weakness in official pay data in recent months has been linked in part to distorted year-on-year comparisons after employers last year pushed payment of bonuses back to take advantage of a cut in income tax.

An ONS official said that effect was now largely washed out of the data.

The numbers also underscore how many employers are still able to keep a lid on pay as more people flood seek work.

Excluding bonuses, pay rose by 0.7 percent in the May-July period, the joint lowest growth figure since records began in 2001 and matching a revised number for the April-June period.

Economists taking part in a Reuters poll had expected total earnings to rise 0.5 percent and by 0.7 percent when excluding bonuses.

In the month of July alone, total pay and regular pay - excluding bonuses - rose by 0.7 percent.

Pay growth has lagged inflation for most of the period since the financial crisis in 2008. It narrowly overtook inflation in the first quarter of this year but then fell back again, putting living standards at the centre of the opposition Labour party’s message to voters ahead of next May’s national election.

Data released on Tuesday showed inflation in August slowed to 1.5 percent, matching a recent five-year low but still much higher than the latest pay data.

The ONS said the number of people in employment rose by 74,000 to 30.609 million in the three months through July.

That was the slowest increase in employment since the April-June period of last year.

The number of people claiming unemployment benefit in the month of August fell by 37,200, compared with a revised 37,400 in July.

(Reporting by William Schomberg and Paul Sandle)

uk.economics@reuters.com,Tel:44 207 5427748

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