Chris said: “Unemployment continues to fall faster than expected amid yet another bout of record hiring, bringing the jobless total to its lowest since the start of 2009. Weak pay growth and the ‘cost of living crisis’ remains the Achilles Heel of the economic recovery, but it should not be long until we see earnings growth accelerate as the labour market continues to tighten.
“The strong labour market data will fuel more discussions at the Bank of England about the timing of the first interest rate hike, and whether an earlier than currently envisaged hike is warranted to cool the economy. Policy makers will no doubt want to be sure that pay growth is picking up substantially before making the first move in tightening policy, but today’s data will add to expectations the first rate hike will take place this year rather than next.
“The rate of unemployment fell from 6.8% in the first quarter to 6.6% in the three months to April, its lowest since January 2009 according to the Office for National Statistics and below expectations of a fall to 6.7%.
“The number of people in employment meanwhile shot up by 345,000 in the three months to April, the largest jump seen since data were first available in 1971. The latest gain follows a record rise in the first quarter. However, in contrast to prior months, the latest rise was driven by companies taking on staff, rather than a sharp increase in self-employment.
“The improvement follows buoyant survey data, which also point to further labour market gains in the coming months. Recruitment consultancies have reported that the number of people placed in permanent positions has so far this year shown the strongest spell of growth since data were first available in 1997. The Markit/CIPS PMI surveys have likewise signalled the largest rise in employment in 16 years of data collection in May. Unemployment should therefore continue to fall.
“However, the generally positive report was marred once again by disappointing pay data. The annual rate of growth of employee earnings was just 0.7% in the three months to April, which compares with an inflation rate of 1.8% and a rate of 1.9% in the first quarter. Regular pay (excluding bonuses) also rose just 0.9%.
“The good news is that this slowing pay growth is likely to have mainly reflected the impact of last year’s top-bracket income tax change (which boosted pay this time last year).
“Pay growth should pick up in coming months, perhaps significantly. The recruitment industry survey shows that skill shortages are currently rising at the fastest pace since 1997. Pay growth is naturally rising as a result, with new starter salaries growing in the second quarter so far at the steepest pace in seven years.”