The number of unemployed people has fallen at its fastest quarterly rate in four years even though the jobs market shows signs of weakening after record growth.
Figures for people without a job showed a fall of 23,000 to 1.3 million in the three months to September, reducing the unemployment rate to 3.8 per cent. The rate for women was 3.6 per cent, a joint record low.
However, the number of people taken on fell at its fastest rate in four years. The number of people in employment dropped by 58,000 to 32.7 million. Although the fall was less severe than analysts had forecast, it is the biggest decline since the quarter to May 2015.
At 76 per cent, the employment rate fell by 0.1 per cent on the previous period, but was higher than the 75.5 per cent recorded a year ago and just below the record high of 76.1 per cent.
The quarterly fall in employment and unemployment alike indicates a rise in economic inactivity, meaning a growing number of people stopped looking for work and dropped out of the labour market. The Office for National Statistics said that economic inactivity was up 0.1 per cent on the quarter, driven by a 0.3 per cent rise for women.
Employment may be close to a record high but economists have warned that the country’s poor productivity could cap the prospects for pay growth.
Low productivity means that companies struggle to produce more with the same resources and so are unable to increase wages faster than prices. This causes living standards to stagnate.
Annual productivity growth was flat in the third quarter but grew by 0.3 per cent compared with the previous quarter. It marked the fifth successive quarter that output per hour worked failed to register a year-on-year gain.
Earnings continued to grow but fell further from the decade high of 3.9 per cent in the three months to July. Average weekly earnings growth, including bonuses, came in at 3.6 per cent in the three months to August, lower than the 3.8 per cent forecast by economists and the third consecutive quarter of slowing growth. Weekly earnings remain £3 below their pre-recession peak of £473.
Official GDP figures show that the economy expanded by 0.3 per cent between July and September, after contracting by 0.2 per cent in the second quarter. The UK avoided a recession but year-on-year growth slowed to 1 per cent in the three months to the end of September, the lowest level since the first three months of 2010.
The labour market has been resilient despite the wider economy struggling to gain momentum, which many economists attribute to Brexit uncertainty among employers, who are more likely to hire workers they can lay off later than make longer-term commitments.
However, signs of strain have been emerging over the past few months. In an indication of weak confidence among employers, the number of vacancies dropped by 53,000 to 800,000 in the three months to October — the biggest annual decline since the end of 2009.
Howard Archer, chief economic adviser to the EY Item [Independent Treasury Economic Model] Club, a forecasting group, said: “The jobs data are mixed but overall show a softening trend, indicating the labour market is undeniably faltering in the face of soft domestic economic activity, a weakening global economy and heightened Brexit and domestic political uncertainties.”