Soaring UK employment and big fall in unemployment still barely registers in pay figures so no need for early interest rate rise

The Office for National Statistics (ONS) has released the latest set of UK labour market data, mostly covering the three months to November last year.

In terms of the pace of employment growth, these latest figures could hardly be better. Many more people in work (up 280,000 in a single quarter), the rate of unemployment already down to 7.1%, fewer young people without work (down 39,000 on the quarter), fewer long-term jobless (down 18,000), rising job vacancies and a fall in redundancies. The number of unemployed people on Jobseekers Allowance has also fallen (by 24,000 in December)

The rise in employment is fairly evenly split between employees and self-employed people. Full-time employment accounts for the bulk (80%) of the total increase and the number of part-timers who want a full time job, one measure of underemployment in the economy, has at last fallen (down by 12,000). The unemployment rate has fallen in every nation and region of the UK except South West England (where there has been an increase of 0.5 percentage points) and Northern Ireland where the rate is unchanged.   

However, all this good news is yet to significantly boost the economic feel good factor for most workers because soaring employment is still barely registering in the pay figures. Average weekly earnings are rising at an annual rate of only 0.9%, still well below consumer price inflation of 2%.   

It’s now inevitable that unemployment will soon fall below the Bank of England’s forward guidance rate of 7%, though precisely when remains uncertain (although the headline three month measure of the unemployment rate fell to 7.1 in November, the latter month itself saw the rate tick-up to 7.4% on the volatile single month measure). But despite this the weakness of pay growth suggests there is still a considerable amount of slack in the labour market which for the time being remains an inflation free zone. Better than expected news on jobs is no reason for an early rise in UK interest rates.