Unemployment rate falls to 2009 low as data dashes hopes of real wage growth

 
Peter Spence
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Unemployment has taken a further dive, continuing its falls in the three months to April to 6.6 per cent. A drop was widely expected, but analysts had forecast a smaller fall, to just 6.7 per cent.

That measure of unemployment, released by the Office for National Statistics (ONS), has now been declining steadily for a prolonged period, taking the overall rate down to its lowest level since January 2009.

There are now 2.16m unemployed people in the UK according to the ONS, down 161,000 from the three months to January, and 347,000 fewer than a year earlier. Meanwhile, the number of adults in employment has reached a new all-time high, of 30.54m.

But unemployment data's clout has also been on the descent. Since February the Bank of England has revised its forward guidance, so that consideration of interest rate hikes will likely rest on measures of spare capacity, rather than the now obsolete seven per cent unemployment level.

Investors will be looking at these figures for signs that the amount of spare capacity in the economy is being used up. As Capital Economics points out, "while the labour market is tightening, the remaining slack is keeping a lid on wages".

We've not seen much real wage growth in the last few years, with only a brief period of growth during 2010 and a small increase in March.

This month, analysts at Daiwa Capital Markets expected labour earnings growth "to slow again, leaving real wage growth still in negative territory".

Earnings growth was expected to be subdued this April, as tax changes were likely to support the year-on-year data, especially that including bonuses. Wages increased by just 0.7 per cent in the three months to April on the same period last year, including bonuses.

Inflation has been running well below the Bank's two per cent inflation target, but annual CPI saw a tick upwards from 1.6 per cent to 1.8 per cent in April, seeing the increasing price level yet again outstripping increases in wages. Excluding bonuses, wages grew by just 0.9 per cent in the year to April, also well behind that rise in inflation.

Think tank Niesr has previously estimated that real wages won't catch up to their pre-crisis level until 2018, implying an entire lost decade for real wages, with economists expecting real earnings growth to begin sometime later this year.

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