The pound leaped 0.54 per cent against the dollar to $1.5715 this morning, after data from the Office for National Statistics showed wages grew 2.7 per cent between February and April.
Wage growth is at its fastest rate since Augest 2001, smashing expectations of 2.5 per cent. It is significantly higher than inflation, which stands at 0.1 per cent.
Meanwhile, the unemployment rate dropped to 5.5 per cent, with 31m people in work between February and April, an increase of 114,000 on the three months to January.
Of these, 22.74m were working full-time, up 362,000 on 2014, while 8.31m people were working part time.
The figures show that unemployment fell 43,000 on the three months to January, at 1.81m people.
The unemployment rate among 16 to 24 year olds was 16.1 per cent - down from 16.2 per cent in the three months to January.
Employment minister Priti Patel added that the proportion of the workforce claiming benefits had sunk to 2.3 per cent, the lowest figure since 1975. She said:
Today’s figures confirm that our long-term economic plan is already starting to deliver a better, more prosperous future for the whole of the country, with wages rising, more people finding jobs and more women in work than ever before.
Naeem Aslam, chief market analyst at AvaTrade, added that investors considered high wage growth "music to their ears".
The fact is if you want domestic inflation to pick up, one of the ways to see that is through wage growth in the private sector because with more money in the consumer’s pocket, they tend to spend more, which pushes the inflation figure.
However, the overall inflation figure is still well below the Bank of England target and this will remain the key factor.
David Kern, chief economist of the British Chambers of Commerce, said the figures show living standards are rising but warned that youth unemployment was concerning. He said:
The flexibility and dynamism of the UK labour market remain a major source of strength for the economy and confirm our optimism that we will continue to see growth in the year ahead.
One area of concern is youth employment, which remains stubbornly high - almost three times higher than the national average.
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