The unemployment rate, which rose as high as 8.5 percent in 2011, has plunged over the past couple of years
Britain’s unemployment rate fell to its lowest level since early 2008 but earnings grew more slowly than expected, showing why the Bank of England is in no hurry to raise interest rates. Britain’s unemployment rate dipped to 5.3 percent in the third quarter, its lowest level since the three months to April 2008, before the financial crisis hammered the economy. Economists polled by Reuters had expected the rate to hold steady at 5.4 percent. The unemployment rate, which rose as high as 8.5 percent in 2011, has plunged over the past couple of years and in 2015 it has again fallen faster than the BoE expected. But wage growth has not risen as strongly as the Bank projected. Last week the BoE said Britain’s near-zero inflation rate would only pick up slowly even if interest rates stayed on hold throughout next year. Sterling fell after Wednesday’s data release as investors bet it would keep the pressure off the BoE to raise rates, even as the U.S. Federal Reserve heads for a hike possibly as soon as next month. But economists were broadly upbeat about the data and some expected wage growth to pick up given the strength of the labour market, even though the growth in the third quarter lagged their expectations in a Reuters poll. We think the weaker-than-expected earnings growth will prove very temporary; indeed, a range of measures confirm that the labour market is tightening and that will drive wage growth higher,” Daniel Vernazza, UK economist at UniCredit, said. The Office for National Statistics said the total earnings of workers - including bonuses - rose by 3.0 percent in the three months to September, unchanged from the three months to August but below a 3.2 percent forecast in a Reuters poll. In the month of September alone, total wages rose by 2.0 percent, a sharp slowdown from 3.2 percent in August and the weakest increase since February this year. Excluding bonuses, average weekly earnings growth also slowed noticeably to 2.5 percent in the third quarter and 1.9 percent in the month of September alone, both the weakest readings since the first quarter of 2015. The BoE has said it is keeping a close eye on wage growth as it mulls its first rate hike since 2007. Strong U.S. jobs numbers last week bolstered expectations that the Federal Reserve will raise interest rates in December. The ONS said the number of people in employment rose by 177,000 in the third quarter, taking the employment rate to 73.7 percent, the highest since records began in 1971. The number of unemployed people fell by 103,000, the biggest fall since the three months to September of last year, the ONS data showed. For most of the period since the financial crisis, average earnings in Britain lagged inflation. But more recently, the tables have turned with wages picking up and inflation falling below zero. However, wage growth remains weaker than before the downturn, something the Bank of England has stressed as it explains why it is keeping interest rate at a record low.