Unemployment has risen for a second month running in a surprise setback for Britain’s previously jobs-rich recovery amid signs that wages have also come off the boil, according to official figures.
The number of unemployed increased by 25,000 in the three months to June, compared with the previous quarter, the Office for National Statistics said. That followed a 15,000 rise in the three months to May, which was the first increase in two years.
Britain’s recovery had been marked by the strength of the labour market. One million jobs were created in the last parliament and George Osborne set a target in the July budget of doubling that in the five years to 2020.
However, the latest figures have taken economists by surprise. Employment fell by 63,000 in the latest ONS release, following a 67,000 drop the previous month.
There had been hope that the weakening jobs market would be accompanied by an increase in annual wages, following last month’s 3.2 per cent rise – the best performance in five years. Figures for the three months to June dealt those ambitions a blow, though, as wages climbed just 2.4 per cent.
The Bank of England is closely following labour market developments to judge when to start raising interest rates. The latest figures will reinforce expectations set at the Bank’s Inflation Report last week that the first increase will not come until spring next year at the earliest.
The Bank’s recent forecasts anticipated the weaker figures, indicating that unemployment would remain around 5.6 per cent for much of the remainder of the year and wages would grow more slowly than previously thought.
However, even the reduced outlook for 3.25 per cent average wage growth in the third quarter may now be optimistic. Alan Clarke, UK economist at Scotiabank, said: “It will take a miracle to hit that target.”
Despite the slight uptick in unemployment numbers, the unemployment rate remained at 5.6 per cent, having increased from 5.5 per cent last month.
Economists said detail in the labour market release suggested the situation was not as bad as first appeared. Private sector regular pay grew 3.3 per cent, but a 4.1 per cent fall in bonuses dragged total private sector pay growth down to 2.8 per cent.
Regular pay for the whole economy, including the public sector, held steady at 2.8 per cent but total pay was again hit by a big drop in bonuses – of 34.4 per cent in the public sector – causing the central earnings figure to drop to 2.4 per cent from 3.2 per cent.
“Wages disappointed because of bonus payments which I suspect the [Bank] will look through. Does this key data release scream out a rate hike? No. Does its represent a major obstruction to a hike? Not really,” Mr Clarke added.
The three-monthly jobs data also hid signs of a recovery in employment. The latest single month figures, for May, showed an increase of 53,000 jobs following a 71,000 fall in April and 45,000 dip in March. Companies may have paused their recruitment plans ahead of the election, economists speculated.
Others said the figures underscored why the Bank should leave rates unchanged at 0.5 per cent for longer. The British Chambers of Commerce said the data “reinforce the case for maintaining interest rates”.