Unemployment in Britain fell in May to its lowest level since the mid-1970s, evidence that the labor market is resilient in the face of a wider economic slowdown largely related to uncertainty surrounding the country’s upcoming exit from the European Union. The Office for National Statistics said Wednesday that the country’s unemployment rate between March and May fell to 4.5 percent, down 0.2 percentage point from the previous three-month period. The rate is now at its lowest level since 1975.
Overall, the agency said the number of people out of work declined by 64,000 during the quarter to just under 1.5 million. The employment rate, the proportion of people aged from 16 to 64 who were in work, was 74.9 percent, the highest since comparable records began in 1971.
The positive news contrasts with other figures showing the economy slowing down. In the first quarter of the year, the British economy grew by a quarterly rate of 0.2 percent, the lowest rate among all the Group of Seven leading industrial economies.
Employment figures often lag developments in the wider economy so the impact of the recent slowdown may not be felt for some months.
Still, they may bolster the view of some members of the Bank of England’s Monetary Policy Committee that interest rates have to go up this year from the record low of 0.25 percent, especially with inflation running above the 2 percent target at 2.9 percent. The worry for them is that the British economy is running at near capacity and that could help push up prices. It’s a concern that is also being voiced by the Federal Reserve in the US, which has been raising interest rates on a regular basis.
Other rate-setters, though, are likely to point to the continued weakness of wage growth as an indication that the UK economy remains far from operating at capacity. The statistics agency said Wednesday that average weekly earnings for employees increased by 1.8 percent including bonuses, and by 2.0 percent excluding bonuses, compared with a year earlier. Both are below inflation, meaning that living standards are falling, a development that’s likely to weigh on spending in the months to come as it has done over the previous few.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the recent fall in consumer confidence will also likely make workers even less willing to change roles, decreasing the pressure on employers to offer higher salaries to retain staff.
“So despite low unemployment, we continue to expect wage growth to remain in the low 2’s, placing little pressure on the MPC to hike rates,” he said.