Rise in number of economically inactive people enables unemployment to fall below 2 million despite slower pace of job creation as self-employment records sharp quarterly fall

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months June to August 2014.

The fall in unemployment to below 2 million (1.97 million or 6% of the workforce, the lowest rate since late 2008) will grab the headlines but the latest figures suggest an underlying change in the pattern of the labour market recovery. The pace of net employment creation (up just 46,000 in the latest quarter to a total of 30.76 million, with a working age employment rate of 73%) has slowed markedly compared with earlier in the year, due in large part to a sharp quarterly net fall of 76,000 in self-employment. As for employees, continued growth of 107,000 in the quarter was split roughly between full-timers and part-timers (causing another slight fall, to 1.35 million, in the number of people working part-time because unable to find a full-time job). However, unemployment has nonetheless continued to fall sharply because slower employment growth was dwarfed by a big quarterly rise of 113,000 in the number of economically inactive people, almost half of which is accounted for by a rise in the student population. The fact that the latest fall in unemployment has been driven by rising inactivity rather than employment creation also helps explain why the associated fall of 18,600 between August and September in the number of people unemployed and claiming job seekers allowance (JSA) is also much lower than in recent months.

There is slightly better news on the rate of growth in average weekly earnings (unchanged at 0.7% including bonuses and up to 0.9% when bonuses are excluded) though this is still much lower than the accompanying rate of price inflation and there is little sign of an imminent pay surge to end the real wage squeeze.