Wednesday 15 June 2016 10:00 am

Unemployment rate hits lowest level for 11 years and wage growth holds up

The unemployment rate has fallen to its lowest level in 11 years, as EU referendum fears and the introduction of the national living wage failed to hold back UK firms.

Falling from 5.1 per cent last month to five per cent, the headline unemployment rate in the three months to the end of April was the lowest it has been since the autumn of 2005, according to figures released by the Office for National Statistics (ONS) this morning.

Wage growth also held steady, with average weekly earnings, including bonuses rising at a rate of two per cent a year – the same as last month's figures. After stripping out volatile bonuses, incomes grew by 2.3 per cent over the year.

With inflation running at around 0.3 per cent, real wage growth comes in at around 1.7 per cent – one of the strongest levels since the crisis.

Economists had expected wage growth to pick up but the unemployment rate to either hold steady or increase slightly as uncertainty in the run-up to the referendum and the new higher minimum wage dented confidence among job creators. These figures, along with strong GDP estimates, manufacturing, construction and export data out last week, defy the idea that the real economy is suffering a pre-referendum slowdown.

"The healthy performance of the labour market provides more evidence that growth has not slowed markedly in the second quarter ahead of the looming referendum," said Ruth Miller at Capital Economics.

Michael Martins, an economist at the Institute of Directors said firms were "keeping calm" ahead of the referendum, while David Kern at the British Chambers of Commerce said that "the economy may not have softened as much as feared in the early months fo 2016. Our flexible dynamic labour market remains a source of strength for the UK economy."


"Job creation has continued despite … drags on growth and regular pay growth has also edged up, helped by the introduction of the national living wage in April," said John Hawksworth, chief economic at PwC.

These figures are the first that include the period after the implementation of the national living wage – which created an extra band of the minimum wage at £7.20 an hour for those over the age of 25.

At five per cent the unemployment rate is now in line with the Bank of England's estimates of full employment, meaning that further falls would put upward pressure on inflation. Should the UK vote to stay in the EU – and market volatility recedes – "a rate hike might come back on the agenda before too long," according to Miller.