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Fall in UK unemployment

Unemployment, measured by the Labour Force survey, fell by 36,000 in the three months to March 2011, to reach 2.46m. This is according to official statistics just released by the Office for National Statistics.

This means that the unemployment rate was down 0.1 percentage point on the quarter, to reach 7.7%. The number of men unemployed fell by 31,000 to reach 1.43m and the number of unemployed women fell by 56,000 to reach 1.03m.

It's still not safe to look down

Further analysis of the figures show that there was a fall in the number of people unemployed for up to 12 months of 56,000 to reach 1.61m but things worsened for the long-term unemployed. The number unemployed for over 12 months increased by 20,000, to reach 850,000, which is the highest figure for fourteen years. The jobless rate for young people stood at 20%, with 935,000 out of work.

However, the number of people claiming Jobseeker’s Allowance, often called the Claimant Count, actually rose by 12,400 between March and April 2011 to reach 1.47m.

In terms of the number of people employed, the employment rate for those aged 16-64 for the three months to March 2011, was 70.7%, which was an increase of 0.2 on the quarter. This meant that the number employed rose by 118,000 on the quarter and by 416,000 on the year to reach 29.24m.

This level of employment is pretty impressive, as it compares with a peak before the recession of 29.56m recorded in the three months to the end of May 2008.

As far as earnings are concerned, when measured to include bonuses, these rose by 2.3% for the three months to March, which was up from 2.1% in the three months to February. When bonuses are excluded, the figure was 2.1%, down from 2.2% in the three months to February.

This means that on the whole increases in earnings are fairly low and stable, given an inflation rate of 4.5%. But will this last? The governor of the Bank of England, Mervyn King, is obviously not sure. In the letter he wrote to the chancellor yesterday to explain the Bank’s ongoing inability to meet its inflation target obligations, he warned that some workers would no longer be willing to accept this drop in real incomes.

He said, “…the continuing experience of high levels of inflation may push up on inflation expectations, or lead to some resistance to the erosion of real take-home pay. Either of these mechanisms could put upward pressure on wages and prices looking ahead.”

So although an improving labour market is obviously a ‘good thing’ there is also a potential downside. As the market becomes tighter, employers will find it increasingly difficult to resist demands for higher wages. This in turn could lead to a wage-price spiral and put additional pressure on inflation. And, if we continue to run inflation levels which are significantly higher than our competitors, we will see deterioration in our trade balance, which will have a negative impact on GDP growth.

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Posted in Earnings, Employment, Inflation, unemployment

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