Unemployment has fallen below 7 per cent for the first time since 2009, as wage growth caught up with inflation and employment levels touched a fresh high.
Almost a quarter of a million jobs were created between November and February, pushing employment to a record high of 30.4m, according to the Office for National Statistics (ONS).
This helped to cut the unemployment rate to 6.9 per cent in the three months to February, down from 7.1 per cent in the quarter to November 2013 and 7.9 per cent a year earlier, reports The Telegraph. Economists expected the jobless rate to fall to 7.1 per cent.
The dip below 7 per cent also means the Bank of England will move away from its focus on a single threshold to decide when to raise interest rates. It will now look at a broad range of “key judgments” including business investment, exports and productivity, which it outlined in February.
The Bank said last August that it would not begin to think about raising rates until unemployment fell below 7 per cent. At the time, it believed this would not occur until 2016.
Wednesday’s data also showed pay growth matched inflation for the first time since 2010 – when a bonus-related spurt pushed up earnings. Total pay – including bonuses – averaged 1.7 per cent in the three months to February, matching the 1.7 per cent rate of consumer prices inflation seen that month.Wages have not kept pace with price rises over a sustained period since 2008.
However, pay growth was uneven across sectors. Private sector workers saw average weekly earnings growth of 2 per cent over the period. However, increases in the public sector averaged just 0.9 per cent.
“Bonus pay accounts for the end of the squeeze – regular pay rises are still running at a sub-inflation rate of 1.4 per cent – although workers in the private sector on average enjoyed a small real wage increase in February whether one looks at nominal growth in pay including bonus payments or excluding bonus payments,” said John Philpott, director of the Jobs Economist.
“Either way, with pay set to keep rising against a backdrop of modest price inflation, average real earnings on this measure are now on the up even though still well below the pre-recession level.”
Official figures on Tuesday showed the cost of living is continuing to fall. CPI inflation eased to 1.6 per cent in March, further easing pressure on squeeze households.
Underemployment also declined. The number of part time workers who could not find a full time job fell by 17,000 over the quarter to 1.42m. However, others noted that more than half of the increase in jobs between December and February was due to a rise in self-employment. Alan Clarke, director of fixed income at Scotiabank, described the continued increase in self-employment as a “health warning”.
“While there is nothing wrong with being self-employed, this trend shows that the pace of hiring by firms is not as super strong as at face value. A worst case scenario is that displaced workers (for example let go by the public sector as part of the austerity programme) are setting up as self-employed to generate income to keep paying the bills,” he said. “These may not be as productive and profitable as jobs in firms, so the strength of the headline reading is probably a bit misleading.”
Research by the Resolution Foundation on Wednesday showed a quarter of those who began self-employment in the last five years would prefer to be employees.
The Chancellor said Wednesday’s data provided “compelling evidence” that the Government’s economic plan was working. He added that Britain had taken a further step towards his ambition for “full employment”, where almost everyone has a job, but enough people are unemployed to prevent sharp wage increases.
“These strong jobs numbers are very good news,” he said. “These remain difficult times for families facing pressures on their budgets, and much work needs still to be done to build a resilient economy. But today’s news supports the argument we have made all along that the only way to see rising living standards is to grow the economy.”