Unemployment in hit its lowest level since 1975 in the three months to January while the rate of working-age adults employed stayed at record highs.
However, weaker wage growth at a time inflation is rising has given economists – and sterling – pause for thought.
The government was cock-a-hoop. Damian Hinds, minister for employment said he was “delighted”, describing it as “good news for hardworking families across the UK as we continue to build a country that works for everyone.”
Independent analysts were more circumspect:
Chris Williamson, chief business economist at IHS Markit, said: “Signs of UK wage growth cooling add to warning shots that the economy is slowing, and suggest that policymakers will take an increasing dovish stance in coming months.
“Better news on unemployment and hiring will meanwhile help bolster confidence in the economy’s resilience as the UK heads closer to invoking Article 50, but the combination of record employment and falling pay growth remains a major concern.”
The slow wage growth despite a tight labour market could vindicate the Bank of England’s analysis of the economy, according to Chris Hare, an economist at Investec.
He said: “Today’s labour market data presented somewhat of a mixed bag.”
At face value, given the strength of the employment numbers, the extent of the slowdown in wage growth appears puzzling.
Nina Skero, managing economist at the Centre for Economics and Business Research (CEBR), said: “One reason for this may be weak productivity growth – an issue that is unlikely to be resolved anytime soon despite increased government attention.”
The Bank of England lowered its equilibrium rate of unemployment – the difficult to measure level at which wage demands will not accelerate – from five per cent to 4.5 per cent at its last monetary policy meeting.
The size of the move, which implies there is more slack in the labour market and, therefore, that the Bank does not need to raise interest rates, was opposed by some members of the Monetary Policy Committee (MPC).
Hare said: “Because of the soft wage picture, and the prospect of a real income squeeze driving an economic slowdown, the MPC will be keen to stand pat on monetary policy for the time being.”
Indeed, the labour market is showing few signs of slowing down. John Hawksworth, chief economist at PwC, said: “The momentum of jobs growth actually looks somewhat stronger now than a few months ago, while the unemployment rate fell to 4.7 per cent, its lowest level since 1975. For the moment, the jobs market remains in fine fettle.”
Business groups were not as positive, with concerns over the decline in spending power as wages only just stay ahead of price increases.
Rachel Smith, CBI principal labour market economist, said: “Real pay growth is now at the slowest rate for two years, underlining the importance of increasing productivity, which remains the only sustainable route to higher wages, and therefore living standards.
We need to unlock the productive potential of all UK nations and regions by pursuing a meaningful, regionally-focused industrial strategy, with clear priorities and targets, that delivers opportunity and prosperity for all.
Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said: “It appears increasingly likely that inflation will outstrip earnings growth in the coming months, which will put further pressure on consumer’s spending power.
“With Article 50 set to be triggered shortly, it is vital that more is done to provide greater clarity and stability for firms, including certainty on the residence rights of their existing EU workers, and clarity on the regime for hiring from EU countries during the negotiation period.”