UK employment growth reaches 25 year high
Unemployment continued to fall in the UK in the first quarter of 2014 as the rate reached 6.8%, down from 7.8% at the same point a year before. The rate is now at its lowest since the start of 2009, as the economic recovery maintains momentum.
This fall in the unemployment rate was spurred on by year-on-year growth in employment of 2.4%, or 720,000 workers. This is the fastest employment growth since 1989, highlighting the current strength of economic expansion. The majority of this annual increase was down to full time employment, with an increase of 573,000 workers, while the number of part time workers rose by 148,000. Encouragingly, this move toward full-time work has helped to reduce the level of underemployment in the economy, as the share of people working part-time only because they couldn’t find a job with longer hours stood in Q1 2014 at 17.7%. This is down from a series high of 18.5% in mid 2013, although remains well above the low of 7.4% seen in 2004.
The effects of strong hiring intentions also continue to feed through into pay settlements. In Q1 2014, average total pay grew year on year by 1.7%, up from just 0.7% at the same point a year before. Wage growth is now broadly in line with annual consumer price inflation, of 1.7% in Q1 on average, and above the inflation of 1.6% seen in March 2014. These latest figures provide further signs that the end of real wage erosions has come for UK workers, particularly once the effect of the change in the income tax free personal allowance is taken into consideration. The more timely VocaLink Take Home Pay Index, which looks at post-tax pay, shows this more buoyant growth continuing into April and outpacing inflation.
Overall, the labour market continues to provide good news for the UK and will likely cheer the Chancellor ahead of next year’s election. However, as the unemployment rate and hence spare capacity continue to fall, pressure will grow on the Bank of England to start raising rates. We will find out the Monetary Policy Committee’s current view on spare capacity later today, when the Bank’s latest Inflation report is released. However, expect a base rate rise before May 2015.
