Real wages finally lifting while unemployment drops further

UNEMPLOYMENT dived again as the British economy continued to surge ahead in the three months to March, official figures showed yesterday.

Joblessness fell to 6.8 per cent, down from 7.2 per cent in the previous three month period – meaning 133,000 fewer people were out of work.

Employment hit another record high of 30.43m, up 283,000 on the three-month period.

And wages at last began to outstrip inflation – average weekly wages rose 1.7 per cent in the year to March, above the 1.6 per cent rise in prices over the same period.

The Bank of England yesterday forecast further improvements. Governor Mark Carney said that people were returning to employment from long-term joblessness more quickly than they had in the past.

According to the Bank, this suggests that the rate of joblessness may drop to a lower level than previously thought when the economy is more fully recovered, but take longer to get there.

Most of the improvement in the three months to March came among men, where joblessness fell 90,000 to a rate of seven per cent. Female unemployment fell 43,000 to 6.4 per cent. Youth unemployment dropped 43,000 to 691,000, with the rate among 18 to 24 year olds down to 16.9 per cent.

On pay, most of the growth came in the private sector with a 1.8 per cent rise, above the 0.7 per cent recorded for the public sector.

Construction and manufacturing both saw pay rises of 2.9 per cent, compared with a fall of 0.4 per cent among financial and business workers.

A separate study from the Chartered Management Institute today shows company directors’ bonuses have fallen by an average of 23 per cent in the last year, counter to perceptions that the highest paid are doing the best out of the recovery.

Total hours worked increased 0.9 per cent in the quarter to 975.9m per week. However, that is above the 0.8 per cent rise in GDP, indicating output per worker actually fell in the quarter.

THE BANK EXPECTS...
■ GDP to rise by 3.4 per cent this year, and 2.9 per cent in 2015, 0.2 points higher than expected in the February inflation report.

■ Unemployment will be around 6.7 per cent this year, and 5.9 per cent by the start of 2017.

■ Inflation will drop to 1.7 per cent for 2014, below the Bank’s target.

■ Total pay growth to approach 2.5 per cent by December, the first solid increase in real wages since the crisis.

■ Despite rising wages, productivity will grow slowly, by one per cent this year and two per cent in 2016. Historically, output per hour rose by 2.5 per cent per year on average.

MOVING THE GOALPOSTS
■ In August last year, Carney focused on unemployment as a reason to keep rates low, expecting the jobless rate to stay above seven per cent until the end of 2016.

■ By February, it was clear that unemployment was dropping rapidly, and the Bank chose to focus on the balance of growth. Carney said: “as yet, the recovery is neither balanced nor sustainable”, noting reliance on household spending growth.

■ This month, Carney identified a “greater contribution of investment” to growth, moving to focus on productivity. The Bank suggests there is still slack in the economy equivalent to around one to 1.5 per cent of GDP.

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