Unemployment falls and wages rise faster than prices in boost for consumer finances

21st January 2015

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The number of people unemployed fell by 58,000 in the three months to the end of November and the unemployment rate dropped below 6% for the first time in six years, official figures reveal.

Employment rose by 37,000 from September to November 2014, according to the Office for National Statistics.

The unemployment rate was 5.8% compared with 6% in the previous three months,  and 7.1% a year earlier.

There were 1.91 million unemployed people. This was 58,000 fewer than for June to August 2014, the smallest quarterly fall since July to September 2013. Comparing September to November 2014 with a year earlier, there were 418,000 fewer unemployed people.

The youth unemployment rate was 16.9%, up from 16.0% in the previous three months.

Earnings including bonuses rose by 1.7%, compared with the year earlier and earnings excluding bonuses rose by 1.8, both of which were higher than the consumer prices index inflation of 1% in November and 0.5% in December.

The claimant count in December 2014 fell by 29,700 compared with November 2014.

David Kern, chief economist at the British Chambers of Commerce, said: “These figures again confirm that the UK labour market remains a key strength for the UK, but there are some areas of concern. Although employment is up and unemployment is down, the quarterly changes were the lowest since 2013, supporting the view that the UK economy may be gradually slowing.

“It is also disappointing that youth unemployment, after a long period of steady decline, increased between September and November 2014. While youth unemployment is markedly lower than a year ago we cannot ignore the fact that it remains consistently higher than the adult unemployment rate.

The modest upturn in average earnings growth is a positive development – earnings are also increasing at a faster rate than prices and real living standards are improving. However, wage growth will only be sustainable if it is matched by increased productivity. Equally, earning increases remain below 2% and do not provide any justification for considering an interest rate rise.  The focus of economic policy must remain on sustaining and improving economic growth.”

But  Nicola Smith, head of economics at the TUC, said that it would take a long time for earnings to fully recover.

She said: “After years of falling living standards, today’s real earnings growth suggests that we may finally be starting to make up some of the lost ground. But at this rate of progress it will still be at least another parliament before wages are even back to where they were before the crisis. Households are still far worse off today than they were five years ago.

“There are now concerning signs that young people are being left behind, with long-term youth unemployment failing to improve. Far more must be done to ensure that young people are protected from the damaging effects of long periods out of work.

“With the IMF downgrading its UK growth forecast this week, it’s far from clear that this is a recovery built to last. We need stronger, sustained growth in wages and a far better balanced recovery to ensure that living standards are protected in the years ahead.”

Howard Archer, chief UK and European economist at IHS Global Insight, added: “Earnings growth is now developing an appreciable positive gap over inflation, which is very good news for workers and for consumer spending prospects in 2015. It is also potentially good news for the government as the Conservatives and Liberal Democrats will both be hoping that rising real earnings growth will make people feel happier about life and more inclined to vote for them in May’s general election.

“Furthermore, the prospects for real earnings growth look bright for the coming months, with earnings growth likely to rise and inflation set to dip even further from the current 14-year low of 0.5% (indeed mild deflation is possible for a while over the coming months).”

 

“Meanwhile, the labour market is still seeing decent improvement, although the underlying rate of improvement is showing signs of moderation.”

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