UK Unemployment Rate Falls; Pay Growth Exceeds Expectations

The UK unemployment rate dropped in the second quarter as employers hired more staff after the economy emerged from the Covid lockdown, lifting job vacancies to a record high and driving pay growth higher.

The unemployment rate dropped 0.2 percentage points to 4.7 percent in the second quarter, the Office for National Statistics reported Tuesday. The rate was expected to remain unchanged at 4.8 percent.

At the same time, there was a quarterly increase in the employment rate of 0.3 percentage points to 75.1 percent.

Job vacancies reached a record 953,000 in May to July, after rising 290,000 from the previous quarter.

Average earnings including bonuses grew at a faster pace of 8.8 percent in three months to June, bigger than the expected 8.6 percent. Similarly, earnings excluding bonuses increased 7.4 percent, in line with expectations.

However, annual growth in average employee pay is being affected by temporary factors that have inflated the increase in the headline growth rate, the ONS said.

Chancellor Rishi Sunak said, “Today’s figures show that our plan for jobs is working – saving people’s jobs and getting people back into work.”

“I know there could still be bumps in the road but the data is promising – there are now more employees on payrolls than at any point since March 2020 and the number of people on furlough is the lowest since the scheme launched,” said Sunak.

The latest batch of data brought signs that labor shortages are feeding through into higher pay growth in certain sectors, Ruth Gregory, an economist at Capital Economics, said.

“But underlying pay pressures were reasonably contained overall, and we suspect that beyond the next 6-12 months most of these shortages will wane,” Gregory added.
In July, payroll numbers increased by 182,000 from a month ago, marking the eighth consecutive rise.

The claimant count dropped by 7,800 in July from the previous month.

The extension of the furlough scheme until well after most firms were able to reopen has given many the breathing space they need to bring most workers back, James Smith, an ING economist said.

The economist still expects a rise in unemployment later this year, though the peak is likely to be much lower than looked possible a few months ago.

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