U.K. Unemployment Falls to 5 1/2-Year Low, Wage Growth Slows

Bloomberg: U.K. unemployment slid to the lowest level in 5 1/2 years and the number of people in work rose to a record as the economic recovery strengthened.

The jobless rate fell to 6.5 percent in the three months through May, the lowest since the fourth quarter of 2008, from 6.6 percent in period ending April, the Office for National Statistics said in Londontoday. Employment surged 254,000 to 30.6 million, the most since records began in 1971. Jobless claims, a narrower measure of unemployment, fell 36,300 in June from May, more than economists forecast.

Bank of England Governor Mark Carney put the labor market at the center of policy making earlier this year, saying officials can keep their benchmark rate at a record-low 0.5 percent until more slack has been used up. While unemployment continues to fall and figures yesterday showed inflation accelerating, separate data today showing pay rising at its slowest pace for five years may give policy makers breathing space.

“This is probably the most important monthly release that we get in the U.K.,” Philip Rush, an economist at Nomura International Plc in London said before the data were released. “The broad variety of indicators give different perspectives on the margin of spare capacity. As the margin of spare capacity evolves the time when it is appropriate to start removing stimulus also evolves.”

The pound was little changed after the data, at $1.7135 and 79.08 pence per euro. The 10-year gilt yield was also little changed at 2.64 percent.

Pay Eases

Economists had forecast the jobless rate measured by International Labour Organization methods would decline to 6.5 percent, based on the median of 33 estimates. Jobless claims were forecast to fall 27,000.

Single-month figures showed the ILO jobless rate fell to 6.2 percent in May, the lowest since September 2008, from 6.4 percent in April. That raises the prospect of a further fall in unemployment in the second quarter.

The ILO unemployment total fell 121,000 to 2.12 million in the three months through May from the period through February. Jobless claims have fallen for 20 consecutive months. In May, they declined 32,800 instead of the 27,400 previosly estimated.

Spare Capacity

Wage growth in the three months through May slowed to 0.3 percent, the lowest since May 2009, from 0.8 percent in April. Wage growth excluding bonus payments slowed to 0.7 percent, the least since records began in 2001, from 0.9 percent.

The ONS said the figures continue to be depressed by strong growth a year earlier, when bonus payments were deferred to take advantage of a cut in the top rate of income tax that took effect in April 2013. In May alone, wages rose 0.4 percent from a year earlier following a drop of 1.5 percent in April. Regular pay growth quickened to 0.6 percent from 0.5 percent.

Policy makers are watching pay and employment (UKLFEMCH) data as they try to gauge the amount of spare capacity -- the economy’s room to grow without sparking faster inflation. Deputy Governor-designateNemat Shafik said this month the central bank will probably revise down its estimate of slack in August as officials’ focus shifts to the timing of the first rate increase in seven years.

Thirty-four percent of economists say the BOE will raise the benchmark rate by December, a Bloomberg survey of 50 economists published this week shows. Futures contracts are pricing in a quarter-point rise by February, Sonia rates show.

reporter on this story: Emma Charlton in London