Unemployment rate falls but private sector wage growth suffers

There has been an unexpected dip in the UK's unemployment rate in official figures also showing new recruits in payrolled work at their lowest level for five years and private sector basic pay awards struggling.

The Office for National Statistics (ONS) reported a jobless rate of 4.9% over the three months to April - down from the 5% level measured last month.

The stats showed basic wage growth remaining at a rate of 3.4% - still above the rate of inflation - when a fall to 3.2% had been tipped by economists due to continuing labour market weaknesses highlighted by the report.

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ONS director of economic statistics Liz McKeown said of the data: "The labour market remained broadly stable in the latest quarter, with further softening evident in some measures.

"Payroll numbers continued to fall over this period, with new recruits at their lowest level in five years. However, overall employment was little changed, with some signs of workers moving into self employment.

"Vacancies also continued to fall, further suggesting that firms are becoming more cautious about taking on new staff.

"The decline has been most persistent among lower paying sectors and smaller employers, although the largest fall this quarter was in professional services.

"Meanwhile, regular wage growth in the private sector slowed to its lowest rate in five and a half years, though total earnings are growing faster because bonus payments in March and April are higher than a year ago, particularly in the financial sector.

"Public sector pay growth increased but is once again affected by the timing of pay awards varying this year."

Annual average regular earnings growth was 5.1% for the public sector and 2.9% for the private sector, the ONS said.

The figures were released hours before the Bank of England delivers its latest interest rate decision. They are unlikely to rock the boat in terms of its decision-making.

Just 24 hours earlier, official inflation data showed the pace of price rises was flat at an annual rate of 2.8% in May.

There were also no red flags for the Bank in other key price measurements to justify raising Bank rate.

While there are obvious inflation pressures ahead, including from the planned 13% rise in the energy price cap from July and high factory input costs too, there is no evidence at the moment of so-called second round effects from inflation that could reasonably justify a hike to borrowing costs.

Potential tipping points include energy-led price hikes being reflected widely in the economy and wage settlements rising to meet heightened inflation expectations.

The latter is seen as particularly unlikely though, especially in the private sector where rising employment costs and taxes have been hurting the labour market.

The Bank can afford to bide its time, with financial markets currently expecting only a single interest rate rise before the end of the year.

Before the US-Iran war disruption to global oil supplies, the Bank's policymakers had been tipped to bring Bank rate down further from its current level of 3.75%.

That number is seen as already restrictive as the economy continues to feel the effects of weaker domestic demand and the global slowdown linked to the war.

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Ben Caswell, senior economist at the National Institute of Economic and Social Research, said of the ONS figures: "Taken together, these data point to gradual easing in the labour market, not a complete deterioration, as some had feared.

"Alongside yesterday's softer inflation figures and the tentative agreement to reopen the Strait of Hormuz, this gives the Bank of England the final green light to vote for a hold this afternoon."

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